<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 1997
REGISTRATION NO. 333-11341
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CERUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
CALIFORNIA (PRIOR TO
REINCORPORATION)
DELAWARE (AFTER REINCORPORATION) 2836 68-0262011
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
2525 STANWELL DRIVE, SUITE 300
CONCORD, CA 94520
(510) 603-9071
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEPHEN T. ISAACS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CERUS CORPORATION
2525 STANWELL DRIVE, SUITE 300
CONCORD, CA 94520
(510) 603-9071
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
HOWARD G. ERVIN DAVID J. SEGRE
CYDNEY S. POSNER WILSON, SONSINI, GOODRICH & ROSATI,
COOLEY GODWARD LLP PROFESSIONAL CORPORATION
ONE MARITIME PLAZA, 20TH FLOOR 650 PAGE MILL ROAD
SAN FRANCISCO, CA 94111 PALO ALTO, CA 94304
(415) 693-2000 (415) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement number for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Common Shares, $.001 par value................ 2,300,000 shares $16.00 $2,300,000 $697.00
</TABLE>
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- --------------------------------------------------------------------------------
(1) Includes 300,000 shares that the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Represents the difference between $36,800,000, the proposed maximum
aggregate offering price based on the proposed maximum price per share and
number of shares indicated, and $34,500,000, the proposed maximum aggregate
offering price indicated in the initial filing of the Registration Statement
on September 4, 1996. Estimated solely for the purpose of calculating the
amount of the registration fee in accordance with Rule 457(a) under the
Securities Act of 1933.
(3) In connection with the initial filing of the Registration Statement on
September 4, 1996 $11,897 was paid with respect to a proposed maximum
aggregate offering price of $34,500,000. The additional amount of the
registration fee has been calculated pursuant to Rule 457 with respect to
the additional $2,300,000 of proposed maximum aggregate offering price.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PROSPECTUS (Subject to Completion)
Issued January 8, 1997
2,000,000 Shares
CERUS
COMMON STOCK
------------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY CERUS
CORPORATION (THE "COMPANY"). PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT
THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $14 AND $16.
SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE. APPLICATION HAS BEEN
MADE FOR QUOTATION OF THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET UNDER THE SYMBOL "CERS."
------------------------
CONTEMPORANEOUSLY WITH THIS OFFERING, SUBJECT TO CERTAIN CONDITIONS, BAXTER
HEALTHCARE CORPORATION ("BAXTER") HAS AGREED TO PURCHASE SHARES OF COMMON
STOCK DIRECTLY FROM THE COMPANY IN A PRIVATE PLACEMENT AT A PRICE PER SHARE
EQUAL TO THE PRICE TO PUBLIC LESS UNDERWRITING DISCOUNTS AND COMMISSIONS
FOR AN AGGREGATE PURCHASE PRICE OF APPROXIMATELY $6.9 MILLION (ASSUMING
A TOTAL PRICE TO PUBLIC OF $30 MILLION) (THE "BAXTER PRIVATE
PLACEMENT") PURSUANT TO AN EXISTING AGREEMENT WITH THE COMPANY. SEE
"BUSINESS -- ALLIANCE WITH BAXTER."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 8.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------------- ------------------- ---------------
<S> <C> <C> <C>
Per Share............ $ $ $
Total(3)............. $ $ $
</TABLE>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at
$1,000,000.
(3) The Company has granted to the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
300,000 additional Shares at the price to public less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the Underwriters exercise such option in full, the total
price to public, underwriting discounts and commissions and proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters. It is expected that the delivery of the Shares will be made on or
about , 1997, at the office of Morgan Stanley & Co. Incorporated,
New York, N.Y., against payment therefor in immediately available funds.
------------------------
MORGAN STANLEY & CO. ALEX. BROWN & SONS
Incorporated Incorporated
, 1997
<PAGE> 3
Series of depictions of "Blood Collection, Processing and Transfusion" as
follows:
1. Woman seated at computer terminal conducting interview of seated man. With
caption "1. Donors are interviewed to assess risk for infections like HIV and
hepatitis."
2. Man lying on a bed connected to a mechanism drawing blood from his arm. With
caption "2. Blood is drawn from the donor in either of two ways: as whole
blood (as depicted) or, alternatively, as specific components of blood
(platelets, plasma or red cells) through a process called 'apheresis.'"
3. A dropper and four test tubes containing blood. With caption "3. Blood is
tested. Blood centers routinely screen for HIV, hepatitis B and C, HTLV and
syphilis. Units that test positive are discarded."
4. A centrifuge containing bags of blood. With caption "4. At the same time,
blood is separated in a centrifuge into platelets, plasma and red cells."
5. Three blood bags containing plasma, red cells and platelets, respectively.
Three blood bags, identified as the Platelet Pathogen Inactivation System,
with the central bag depicted as being exposed to light. With caption "5.
Platelets are treated to inactivate pathogens using a photoreactive compound
and light. The Company is also developing pathogen inactivation systems for
plasma and red cells."
6. Woman in a hospital bed receiving platelet transfusion. With caption "6.
Treated platelets are transfused into the patient."
The Company's pathogen inactivation systems are in the early stages of
development, and only certain of these products have been tested in humans.
Therefore, they will require further development, as well as regulatory
approval or clearance, before they can be marketed in the United States or
internationally, which could take several years. There can be no assurance that
such approval or clearance will be obtained.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 4
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER OR SOLICITATION TO SUCH
PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 8
Use Of Proceeds....................................................................... 18
Dividend Policy....................................................................... 18
Capitalization........................................................................ 19
Dilution.............................................................................. 20
Selected Financial Data............................................................... 21
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations.......................................................................... 22
Business.............................................................................. 26
Management............................................................................ 48
Certain Transactions.................................................................. 55
Principal Stockholders................................................................ 57
Description Of Capital Stock.......................................................... 59
Shares Eligible For Future Sale....................................................... 60
Underwriters.......................................................................... 62
Legal Matters......................................................................... 63
Experts............................................................................... 63
Additional Information................................................................ 64
Index To Financial Statements......................................................... F-1
</TABLE>
------------------------
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined by an independent public
accounting firm and quarterly reports for the first three quarters of each year
containing interim unaudited financial information.
------------------------
The Company's logo, Cerus Corporation(TM) and Cerus(TM) are trademarks of
the Company. Trade names and trademarks of other companies appearing in this
Prospectus are the property of their respective holders.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Except as set forth in the financial statements or as
otherwise indicated herein, information in this Prospectus gives effect to (i)
the anticipated reincorporation of the Company from California to Delaware to be
effected prior to the effective date of this offering, (ii) the 1.47-for-one
split of the outstanding Common Stock to be effected prior to the effective date
of this offering, (iii) the conversion of each outstanding share of Preferred
Stock into 1.47 shares of Common Stock, which will occur automatically upon the
closing of this offering, and assumes the exercise of outstanding warrants,
including the net exercise of certain of such warrants, to purchase 47,950
shares of capital stock (on an as-converted basis) (the "Warrant Exercise"),
which warrants expire upon the closing of this offering, and assumes that the
Underwriters' over-allotment option is not exercised. See "Description of
Capital Stock" and "Underwriters." This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this Prospectus.
THE COMPANY
Cerus Corporation ("Cerus" or the "Company") is developing systems designed
to improve the safety of blood transfusions by inactivating infectious pathogens
in blood components used for transfusion (platelets, fresh frozen plasma ("FFP")
and red blood cells) and inhibiting the leukocyte (white blood cell) activity
that is responsible for certain adverse immune and other transfusion-related
reactions. Preclinical studies conducted by the Company have indicated the
ability of these systems to inactivate a broad array of viral and bacterial
pathogens that may be transmitted in blood component transfusions and to inhibit
leukocyte activity. The Company believes that, as a result of the mechanism of
action of its proprietary technology, its systems also have the potential to
inactivate many new pathogens before they are identified and before tests have
been developed to detect their presence in the blood supply. Because the
Company's systems are being designed to inactivate rather than merely test for
pathogens, the Company's systems also have the potential to reduce the risk of
transmission of pathogens that would remain undetected by testing.
Despite recent improvements in testing and processing of blood, patients
receiving transfusions of blood components face a number of significant risks
from blood contaminants, as well as adverse immune and other transfusion-related
reactions induced by leukocytes. Viruses such as hepatitis B (HBV), hepatitis C
(HCV), human immunodeficiency virus (HIV), cytomegalovirus (CMV) and human
T-cell lymphotropic virus (HTLV) can present life-threatening risks. In
addition, bacteria, the most common agents of transfusion-transmitted disease,
can cause complications such as sepsis, which can result in serious illness or
death. Although donor screening and diagnostic testing of donated blood have
been successful in reducing the incidence of transmission of many pathogens,
diagnostic testing has a number of limitations, such as the inability to detect
pathogens prior to the generation of antibodies, ineffectiveness in detecting
genetic variants of viruses, and the risk of human error. In addition, emerging
or unidentified pathogens for which no tests exist also represent a threat to
the blood supply. The continuing risk of transmission of serious diseases
through transfusion of contaminated blood components from both known and unknown
pathogens, together with the limitations of current approaches to providing a
safe blood supply, have created the need for a new approach to blood-borne
pathogen inactivation that is safe, easy to implement and cost-effective.
The Company is designing its pathogen inactivation systems to provide
therapeutically functional platelets, FFP and red cells following the
inactivation treatment process. Pathogen inactivation systems being developed by
the Company employ proprietary small molecule compounds that act by preventing
the replication of nucleic acid (DNA or RNA); platelets, FFP and red blood cells
do not contain nuclear DNA or RNA. When the inactivation compounds are
introduced into the blood components for treatment, they cross bacterial cell
walls or viral membranes, then move into the interior of the nucleic acid
structure. When subsequently activated by an energy source, such as light, these
compounds bind to the nucleic acid of the viral or bacterial pathogen,
preventing its replication. A virus, bacteria or other pathogenic cell must
replicate in order to cause infection. The Company's compounds react in a
similar manner with the nucleic acid in
4
<PAGE> 6
leukocytes, thereby inhibiting the leukocyte activity that is responsible for
certain adverse immune and other transfusion-related reactions.
The Company is initially focusing its product development efforts on its
platelet pathogen inactivation system. Platelet transfusions are used to prevent
or control bleeding in platelet-deficient patients, such as those undergoing
cancer chemotherapy or bone marrow transplant. The Company estimates the
production of platelets in 1995 to have been 1.8 million transfusion units in
North America, 1.4 million transfusion units in Western Europe and 800,000
transfusion units in Japan. The Company's platelet pathogen inactivation system
applies a technology to prevent replication of nucleic acid that combines light
and the Company's proprietary inactivation compound, S-59, which is a synthetic
small molecule from a class of compounds known as psoralens. In September 1996,
the Company completed a Phase 1b clinical trial to assess in healthy subjects
the safety and tolerability of platelets treated with the Company's platelet
pathogen inactivation system. In November 1996, the Company completed a Phase 2a
clinical trial to assess post-transfusion recovery and lifespan of platelets
treated with the system, including a device designed to reduce the amount of
residual S-59 and S-59 breakdown products. The Company plans to conduct a Phase
2b clinical trial to assess the combined effect of treatment with the platelet
pathogen inactivation system and gamma irradiation on post-transfusion platelet
recovery and lifespan. The Company has recently submitted to the FDA a
preliminary protocol for a Phase 3 clinical trial to assess the therapeutic
efficacy of treated platelets in patients requiring platelet transfusion. The
Company intends to submit in the first quarter of 1997 a preliminary protocol
for a Phase 3 clinical trial to ethical committees of institutions that would be
conducting such trial in Europe. The Company currently anticipates that such
trials will commence by mid-1997. For more information on the clinical
development status of this planned product, see "Business -- Products Under
Development -- Platelet Program -- Development Status."
The Company is also developing pathogen inactivation systems for use with
FFP, which is used to control bleeding, and red blood cells, which are
frequently administered to patients with anemia, trauma, surgical bleeding or
genetic disorders. The Company estimates the production of FFP and red blood
cells in 1995 to have been 3.3 million and 13.7 million transfusion units,
respectively, in North America, 4.1 million and 14.3 million transfusion units,
respectively, in Western Europe and 2.0 million and 3.0 million transfusion
units, respectively, in Japan. The Company's FFP pathogen inactivation system is
being designed to employ the S-59 compound and other technology similar to that
used in the platelet pathogen inactivation system. The Company intends to submit
an investigational new drug application to the U.S. Food and Drug Administration
to commence Phase 1 clinical trials for its FFP pathogen inactivation system in
early 1997. The red cell pathogen inactivation system being designed by the
Company is based on the Company's proprietary S-303 compound, which can bind to
nucleic acid in a manner similar to that of S-59, but without the need for the
introduction of light.
The Company has entered into two development and commercialization
agreements with Baxter to develop, manufacture and market pathogen inactivation
systems for platelets, FFP and red blood cells. The agreements provide for
Baxter and the Company to share development expenses. Through December 31, 1996,
Baxter has invested $7.0 million in the capital stock of the Company and has
paid the Company up-front license fees and milestone and development payments
totaling $13.7 million under these agreements. These agreements provide for
Baxter's exclusive right and responsibility to market the systems worldwide and
for the Company to receive a share of the gross profits from the sale of the
systems.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered........................... 2,000,000 shares
Common Stock to be outstanding after the
offering..................................... 8,885,878 shares(1)
Use of proceeds................................ For research and development activities,
including continuing clinical trials,
general and administrative support, capital
expenditures, working capital and general
corporate purposes. See "Use of Proceeds."
Nasdaq National Market symbol.................. CERS
</TABLE>
- ---------------
(1) Based upon the number of shares outstanding as of December 31, 1996.
(Includes 496,878 shares to be issued in the Baxter Private Placement,
assuming an initial public offering price of $15.00 per share.) Excludes,
as of December 31, 1996, (i) 407,383 shares of Common Stock subject to
outstanding options under the Company's 1996 Equity Incentive Plan and
547,067 shares reserved for future issuance thereunder, (ii) 220,500 shares
of Common Stock reserved for future issuance under the Company's Employee
Stock Purchase Plan and (iii) 35,478 shares of Preferred Stock subject to
outstanding warrants, which will convert into warrants to purchase 52,152
shares of Common Stock upon the closing of this offering. See
"Management -- Equity Incentive Plans" and Note 7 of Notes to Financial
Statements.
6
<PAGE> 8
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------- -----------------------
1993 1994 1995 1995 1996
------- ------- --------- ------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................... $ 230 $ 4,796 $ 6,799 $ 3,663 $ 3,067
Operating expenses
Research and development............................ 2,485 5,680 8,125 6,550 8,920
General and administrative.......................... 1,210 1,194 1,517 1,048 1,620
--------
-
------- ------- ------- -------
Loss from operations.................................. (3,465) (2,078) (2,843) (3,935) (7,473)
Other income (expense), net........................... (50) 278 483 343 356
--------
-
------- ------- ------- -------
Net loss.............................................. (3,515) (1,800) (2,360) (3,592) (7,117)
======= ======= ======= ========= =======
Pro forma net loss per share(1)....................... $(0.38) $(1.08)
Shares used in computing pro forma net loss per
share(1)............................................ 6,233,242 6,581,628
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------------------------
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 9,476 $ 9,671 $ 43,502
Working capital................................................ 5,964 6,159 39,990
Total assets................................................... 11,769 11,964 45,795
Accumulated deficit............................................ (17,116) (17,116) (17,116)
Stockholders' equity........................................... 7,861 8,056 41,887
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for a description of the method
used in computing the pro forma net loss per share.
(2) Gives effect to (i) the Warrant Exercise and (ii) the conversion of each
outstanding share of Preferred Stock into 1.47 shares of Common Stock upon
the closing of this offering.
(3) As adjusted to reflect (i) the sale of 2,000,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$15.00 per share and receipt of the estimated net proceeds therefrom and
(ii) the Baxter Private Placement. See "Use of Proceeds."
The Company was incorporated under the laws of the State of California in
September 1991 as Steritech, Inc. In September 1996, the Company's corporate
name was changed to Cerus Corporation. The Company intends to reincorporate in
Delaware prior to the closing of this offering. Unless the context otherwise
requires, references in this Prospectus to the "Company" or "Cerus" refer to
Cerus Corporation, a Delaware corporation, and its predecessor in California.
The Company's principal executive offices are located at 2525 Stanwell Drive,
Suite 300, Concord, California 94520, and its telephone number is (510)
603-9071.
7
<PAGE> 9
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. In evaluating the Company's business, prospective investors should
carefully consider the following factors in addition to the other information
presented in this Prospectus.
Early Stage of Product Development. The Company's pathogen inactivation
systems are in the research and development stage and will require additional
preclinical and clinical testing prior to submission of any regulatory
application for commercial use. The Company currently does not expect to file a
product approval application with the United States Food and Drug Administration
(the "FDA") or corresponding regulatory filings in Europe for its platelet
pathogen inactivation system or for any of its other planned products prior to
1998. The estimated dates related to the Company's regulatory submissions set
forth herein and elsewhere in this Prospectus are forward-looking statements
that involve risks and uncertainties. There can be no assurance that these
regulatory submissions will not be delayed as a result of certain factors set
forth in this "Risk Factors" section and elsewhere in this Prospectus. The
Company's products are subject to the risks of failure inherent in the
development of pharmaceutical, biological and medical device products and
products based on new technologies. These risks include the possibility that the
Company's approach to pathogen inactivation will not be safe or effective, that
the Company's products will not be easy to use or cost-effective, that third
parties will develop and market superior or equivalent products, that any or all
of the Company's products will fail to receive any necessary regulatory
approvals, that such products will be difficult or uneconomical to manufacture
on a commercial scale, that proprietary rights of third parties will preclude
the Company from marketing such products and that the Company's products will
not achieve market acceptance. As a result of these risks, there can be no
assurance that the Company's research and development activities will result in
any commercially viable products. See "Business -- Products Under Development"
and "-- Government Regulation."
Uncertainty Associated with Preclinical and Clinical Testing. The
regulatory process includes preclinical and clinical testing of each product to
establish its safety and efficacy, and may include post-marketing studies
requiring expenditure of substantial resources. The results from preclinical
studies and early clinical trials conducted by the Company may not be predictive
of results obtained in later clinical trials, and there can be no assurance that
clinical trials conducted by the Company will demonstrate sufficient safety and
efficacy to obtain the requisite approvals or that marketable products will
result. The rate of completion of the Company's clinical trials may be delayed
by many factors, including slower than anticipated patient enrollment or any
other adverse event occurring during the clinical trials. Completion of testing,
studies and trials may take several years, and the length of time generally
varies substantially with the type, complexity, novelty and intended use of the
product. Data obtained from preclinical and clinical activities are susceptible
to varying interpretations, which could delay, limit or prevent regulatory
approval. In addition, delays or rejections may be encountered based upon many
factors, including changes in regulatory policy during the period of product
development. The Company's products require significant additional research and
development efforts. No assurance can be given that any of the Company's
development programs will be successfully completed, that any further
investigational new drug applications ("IND") will become effective or that
additional clinical trials will be allowed by the FDA or other regulatory
authorities, that clinical trials will commence as planned, that required United
States or foreign regulatory approvals will be obtained on a timely basis, if at
all, or that any products for which approval is obtained will be commercially
successful. As a result of FDA reviews or complications that may arise in any
phase of the clinical trial program, there can be no assurance that the proposed
schedules for IND and clinical protocol submissions to the FDA, initiations of
studies and completions of clinical trials can be maintained. Any delays in the
Company's clinical trials or failures to obtain required regulatory approvals
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Products Under
Development" and "-- Government Regulation."
No Assurance of Market Acceptance; Concentrated Market. The Company
believes that market acceptance of the Company's pathogen inactivation systems
will depend, in part, on the Company's ability to
8
<PAGE> 10
provide acceptable evidence of the safety, efficacy and cost-effectiveness of
its products, as well as the ability of blood centers to obtain FDA approval and
adequate reimbursement for such products. The Company believes that market
acceptance of its pathogen inactivation systems also will depend upon the extent
to which physicians, patients and health care payors perceive that the benefits
of using blood components treated with the Company's systems justify the
systems' additional costs and processing requirements in a blood supply that has
become safer in recent years. While the Company believes that its pathogen
inactivation systems are able to inactivate pathogens up to concentrations that
the Company believes are present in contaminated blood components when the blood
is donated, there can be no assurance that contamination will never exceed such
concentrations. The Company does not expect that its planned products will be
able to inactivate all known and unknown infectious pathogens, and there can be
no assurance that the inability to inactivate certain pathogens will not affect
the market acceptance of its products. There can be no assurance that the
Company's pathogen inactivation systems will gain any significant degree of
market acceptance among blood centers, physicians, patients and health care
payors, even if clinical trials demonstrate safety and efficacy and necessary
regulatory approvals and health care reimbursement approvals are obtained.
The Company's target customers are the limited number of national and
regional blood centers, which collect, store and distribute blood and blood
components. In the United States, the American Red Cross collects and
distributes approximately 42% of the nation's supply of blood and blood
components. Other major United States blood centers include the New York Blood
Center and United Blood Services, each of which distributes approximately 6% of
the nation's supply of blood and blood components. In Western Europe and Japan,
various national blood transfusion services or Red Cross organizations collect,
store and distribute virtually all of their respective nations' blood and blood
components supply. As a result, the failure to penetrate even a small number of
these customers could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Marketing, Sales
and Distribution."
Reliance on Baxter. Under the terms of the Company's agreements with
Baxter, the Company relies on Baxter for significant funding, product
development support, the manufacture and supply of certain system components and
the marketing of its planned products. The Company anticipates that, prior to
commencement of product sales, if any, the Company's principal source of revenue
will be payments under its development and commercialization agreements with
Baxter. See "Business -- Alliance with Baxter."
The Baxter agreements provide for joint development by Baxter and the
Company of pathogen inactivation systems that include the Company's proprietary
compounds and processes and Baxter's blood collection, processing and storage
technology, as well as the instrument technology of each party. The development
programs under the Baxter agreements may be terminated by Baxter on 90 days'
notice. If the Company's agreements with Baxter were terminated or if Baxter's
product development efforts were unsuccessful, the Company may need to obtain
additional funding from other sources and would be required to devote additional
resources to the development of its products, delaying the development of its
products. Any such delay would have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that disputes will not arise in the future with respect to the Baxter
agreements. Possible disagreements between Baxter and the Company could lead to
delays in the research, development or commercialization of certain planned
products or could require or result in time-consuming and expensive litigation
or arbitration and would have a material adverse effect on the Company's
business, financial condition and results of operations.
Under the terms of the Baxter agreements, Baxter is responsible for
manufacturing the disposable units, such as blood storage containers and related
tubing, as well as any devices associated with the inactivation processes. If
the Company's agreements with Baxter were terminated or if Baxter otherwise
failed to deliver an adequate supply of components, the Company would be
required to identify other third-party component manufacturers. There can be no
assurance that the Company would be able to identify such manufacturers on a
timely basis or enter into contracts with such manufacturers on reasonable
terms, if at all. Any delay in the availability of devices or disposables from
Baxter could adversely affect the timely submission of products for regulatory
approval or the market introduction and subsequent sales of such products and
would have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, the inclusion of components
manufactured by others could require the Company to seek new approvals from
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government regulatory authorities, which could result in delays in product
delivery. There can be no assurance that the Company would receive any such
required regulatory approvals. Any such delay would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Manufacturing and Supply."
If appropriate regulatory approvals are received, Baxter will be
responsible for the marketing, sales and distribution of the Company's pathogen
inactivation systems for blood components worldwide. The Company does not
currently maintain, nor does it intend to develop, its own marketing and sales
organization but instead expects to rely on Baxter to market and sell its
pathogen inactivation systems. There can be no assurance that the Company will
be able to maintain its relationship with Baxter or that such marketing
arrangements will result in payments to the Company. Revenues to be received by
the Company through any marketing and sales arrangement with Baxter will be
dependent on Baxter's efforts, and there can be no assurance that the Company
will benefit from Baxter's present or future market presence or that such
efforts will otherwise be successful. If the Company's agreements with Baxter
were terminated or if Baxter's marketing efforts were unsuccessful, the
Company's business, financial condition and results of operations would be
materially adversely affected. See "Business -- Marketing, Sales and
Distribution."
There can be no assurance that Baxter will not elect to pursue alternative
technologies or product strategies for FFP and/or red blood cell pathogen
inactivation systems, or that its corporate interests and plans will remain
consistent with those of the Company. Under the terms of the agreement covering
the development of pathogen inactivation systems for FFP and red blood cells,
Baxter has reserved the right to market competing products not within the field
of psoralen or Anchor-Linker-Effector ("ALE") inactivation. The Company is aware
that Baxter is developing an alternative pathogen inactivation system for FFP
based on a compound known as methylene blue. Other companies are currently
marketing methylene blue-based pathogen inactivation systems for FFP in Europe.
The development and commercialization of the Company's pathogen inactivation
systems could be materially adversely affected by competition with Baxter or by
Baxter's election to pursue alternative strategies or technologies in lieu of
those of the Company. See "Business -- Competition."
Government Regulation. All of the Company's products under development and
anticipated future products are or will be subject to extensive and rigorous
regulation by the federal government, principally the FDA, and state, local and
foreign governments. Such regulations govern, among other things, the
development, testing, manufacturing, labeling, storage, pre-market clearance or
approval, advertising, promotion, sale and distribution of such products. The
process of obtaining regulatory approvals or clearances is generally lengthy,
expensive and uncertain. To date, none of the Company's products has been
approved for sale in the United States or any foreign market. Satisfaction of
pre-market approval or clearance or other regulatory requirements of the FDA, or
similar requirements of foreign regulatory agencies, typically takes several
years, and may take longer, depending upon the type, complexity, novelty and
intended purpose of the product. There can be no assurance that the FDA or any
other regulatory agency will grant approval or clearance for any product being
developed by the Company on a timely basis, if at all. The Company believes
that, in deciding whether a pathogen inactivation system is safe and effective,
the FDA is likely to take into account whether it adversely affects the
therapeutic efficacy of blood components as compared to the therapeutic efficacy
of blood components not treated with the system, and that the FDA will weigh the
system's safety and other risks against the benefits of using the system in a
blood supply that has become safer in recent years.
The Company's clinical development plan assumes that only data from in
vitro studies, not from human clinical studies, will be required to demonstrate
the system's efficacy in inactivating pathogens and that human clinical studies
will instead focus on demonstrating therapeutic efficacy, safety and
tolerability of blood components treated with the system. Although the Company
has had discussions with the FDA concerning the Company's proposed clinical
plan, there can be no assurance that these means of demonstrating safety and
efficacy will ultimately be acceptable to the FDA or that the FDA will continue
to believe that this clinical plan is appropriate. Moreover, even if the FDA
considers these means of demonstrating safety and efficacy to be acceptable in
principle, there can be no assurance that the FDA will find the data submitted
sufficient to demonstrate safety and efficacy. In particular, there can be no
assurance that the FDA will consider in vitro data an appropriate means of
demonstrating efficacy of pathogen inactivation, and any requirement to provide
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<PAGE> 12
other than in vitro data would adversely affect the timing and could affect the
success of the Company's efforts to obtain regulatory approval.
If regulatory approval of a product is granted, such approval may impose
limitations on the indicated uses for which a product may be marketed. For
example, the Company does not believe that it will be able to make any labeling
claims that the Company's pathogen inactivation systems may inactivate any
pathogens for which it does not have in vitro data supporting such claims.
Further, even if regulatory approval is obtained, later discovery of previously
unknown problems with a product may result in restrictions on the product,
including withdrawal of the product from the market. The policies of the FDA and
foreign regulatory bodies may change, and additional regulations may be
promulgated, which could prevent or delay regulatory approval of the Company's
planned products. Delay in obtaining or failure to obtain regulatory approvals
could have a material adverse effect on the Company's business, financial
condition and results of operations. Among the conditions for FDA approval of a
pharmaceutical, biologic or device is the requirement that the manufacturer's
quality control and manufacturing procedures conform to current Good
Manufacturing Practices ("cGMP"), which must be followed at all times. The FDA
enforces cGMP requirements through periodic inspections. There can be no
assurance that the FDA will determine that the facilities and manufacturing
procedures of Baxter or any other third-party manufacturer of the Company's
planned products will conform to cGMP requirements. See
"Business -- Manufacturing and Supply."
Blood centers and others that ship blood and blood products interstate will
likely be required to obtain approved license supplements from the FDA before
shipping products processed with the Company's pathogen inactivation systems.
This requirement and/or FDA delays in approving such supplements may deter some
blood centers from using the Company's products, and blood centers that do
submit supplements may face disapproval or delays in approval that could provide
further disincentives to use the systems. The regulatory impact on potential
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, transfusion units of random donor platelets, which currently
represent approximately one-half of the platelets transfused in the United
States, contain platelets pooled from six different donors. The Phase 3 European
clinical trial is being designed to assess the therapeutic efficacy of the
platelet pathogen inactivation system for use in treating apheresis platelets
and pooled random donor platelets. The Phase 3 United States clinical trial is
being designed to assess the therapeutic efficacy of the platelet pathogen
inactivation system for use in treating apheresis platelets, not pooled random
donor platelets. In order to obtain FDA approval of the platelet pathogen
inactivation system for use in treating pooled random donor platelets, the
Company may be required by the FDA to conduct additional clinical studies.
In addition, because of the risk of bacterial growth, current FDA rules
require that pooled platelets be transfused within four hours of pooling and, as
a result, most pooling occurs at hospitals. However, the Company's platelet
pathogen inactivation system is being designed to be used at blood centers, not
at hospitals, and requires a processing time of approximately eight hours.
Therefore, in order for the Company's platelet pathogen inactivation system to
be effectively implemented and accepted at blood centers as planned, the
FDA-imposed limit on the time between pooling and transfusion would need to be
lengthened or eliminated for blood products treated with the Company's systems,
which are being designed to inactivate bacteria that would otherwise contaminate
pooled platelets. There can be no assurance, however, that the FDA will change
this requirement and, if such a change is not made, the Company's business,
financial condition and results of operations would be materially adversely
affected. See "Business -- Government Regulation."
Rapid Technological Change; Significant Competition. The biopharmaceutical
field is characterized by rapid and significant technological change.
Accordingly, the Company's success will depend in part on its ability to respond
quickly to medical and technological changes through the development and
introduction of new products. Product development involves a high degree of
risk, and there can be no assurance that the Company's product development
efforts will result in any commercially successful products. Technological
developments may result in the Company's products becoming obsolete or
non-competitive before the Company is able to generate any significant revenue.
Any such occurrence would have a material adverse effect on the Company's
business, financial condition and results of operations.
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The Company expects to encounter competition in the sale of products it may
develop. If regulatory approvals are received, the Company's products may
compete with other approaches to blood safety currently in use, as well as with
future products developed by biotechnology and pharmaceutical companies,
hospital supply companies, national and regional blood centers, and certain
governmental organizations and agencies. Many companies and organizations that
may be competitors or potential competitors have substantially greater financial
and other resources than the Company and may have greater experience in
preclinical testing, human clinical trials and other regulatory approval
procedures. The Company's ability to compete successfully will depend, in part,
on its ability to develop proprietary products, develop and maintain products
that reach the market first, are technologically superior to and/or are of lower
cost than other products on the market, attract and retain scientific personnel,
obtain patent or other proprietary protection for its products and technologies,
obtain required regulatory approvals, and manufacture, market and sell any
product that it develops. In addition, other technologies or products may be
developed that have an entirely different approach or means of accomplishing the
intended purposes of the Company's products, or that might render the Company's
technology and products uncompetitive or obsolete. Furthermore, there can be no
assurance that the Company's competitors will not obtain patent protection or
other intellectual property rights that would limit the Company's ability to use
the Company's technology or commercialize products that may be developed.
Several companies are developing technologies which are, or in the future
may be, the basis for products that will directly compete with or reduce the
market for the Company's pathogen inactivation systems. A number of companies
are specifically focusing on alternative strategies for pathogen inactivation in
various blood components, such as treatment of FFP with solvent-detergent or
methylene blue. The Blood Products Advisory Committee, an advisory panel to the
FDA, has recently unanimously recommended that solvent-detergent be approved for
use in treating FFP. Although recommendations of advisory committees are not
binding, unanimous recommendations are generally followed by the FDA. If
approved by the FDA, there can be no assurance that the treatment of FFP by
solvent-detergent will not become a widespread practice prior to any
commercialization of the Company's FFP pathogen inactivation system. Under the
terms of the agreement covering the development of pathogen inactivation systems
for FFP and red blood cells, Baxter has reserved the right to market competing
products not within the field of psoralen or ALE inactivation. The Company is
aware that Baxter is developing an alternative pathogen inactivation system for
FFP based on a compound known as methylene blue. Other companies are currently
marketing methylene blue-based pathogen inactivation systems for FFP in Europe.
Other groups are developing synthetic blood product substitutes or products to
stimulate the growth of platelets. If any of these technologies is successfully
developed, it could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Alliance with
Baxter" and "-- Competition."
Dependence on Key Employees. The Company is highly dependent on the
principal members of its management and scientific staff. The loss of the
services of one or more of these employees could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company believes that its future success will depend in large part upon its
ability to attract and retain highly skilled scientific and managerial
personnel. Competition for such personnel is intense. There can be no assurance
that the Company will be successful in attracting and retaining such personnel
and the failure to do so could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, a
substantial portion of the stock options currently held by many of the Company's
key employees are vested and may be fully vested over the next several years
before the Company achieves significant revenues or profitability. The Company
intends to grant additional options and provide other forms of incentive
compensation to attract and retain such key personnel. See "Management."
Patent and License Uncertainties. The Company's success depends in part on
its ability to obtain patents, to protect trade secrets, to operate without
infringing upon the proprietary rights of others and to prevent others from
infringing on the proprietary rights of the Company. The Company's policy is to
seek to protect its proprietary position by, among other methods, filing United
States and foreign patent applications related to its proprietary technology,
inventions and improvements that are important to the development of its
business. Proprietary rights relating to the Company's planned and potential
products will be protected from unauthorized use by third parties only to the
extent that they are covered by valid and enforceable patents or
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<PAGE> 14
are effectively maintained as trade secrets. There can be no assurance that any
patents owned by, or licensed to, the Company will afford protection against
competitors or that any pending patent applications now or hereafter filed by,
or licensed to, the Company will result in patents being issued. In addition,
the laws of certain foreign countries do not protect the Company's intellectual
property rights to the same extent as do the laws of the United States.
The patent positions of biopharmaceutical companies involve complex legal
and factual questions and, therefore, their enforceability cannot be predicted
with certainty. There can be no assurance that any of the Company's patents or
patent applications, if issued, will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide proprietary
protection or competitive advantages to the Company against competitors with
similar technology. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate any technology developed
by the Company. Because of the extensive time required for development, testing
and regulatory review of a potential product, it is possible that, before any of
the Company's products can be commercialized, any related patent may expire or
remain in existence for only a short period following commercialization, thus
reducing any advantage of the patent, which could adversely affect the Company's
ability to protect future product development and, consequently, its operating
results and financial position.
Because patent applications in the United States are maintained in secrecy
until patents issue and because publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, the Company cannot be
certain that it was the first to make the inventions covered by each of its
issued or pending patent applications or that it was the first to file patent
applications for such inventions. There can be no assurance that the Company's
planned or potential products will not be covered by third-party patents or
other intellectual property rights, in which case continued development and
marketing of such products would require a license under such patents or other
intellectual property rights. There can be no assurance that such required
licenses will be available to the Company on acceptable terms, if at all. If the
Company does not obtain such licenses, it could encounter delays in product
introductions while it attempts to design around such patents, or could find
that the development, manufacture or sale of products requiring such licenses is
foreclosed. Litigation may be necessary to defend against or assert such claims
of infringement, to enforce patents issued to the Company, to protect trade
secrets or know-how owned by the Company or to determine the scope and validity
of the proprietary rights of others. In addition, interference proceedings
declared by the United States Patent and Trademark Office may be necessary to
determine the priority of inventions with respect to patent applications of the
Company. Litigation or interference proceedings could result in substantial
costs to and diversion of effort by the Company, and could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that these efforts by the Company would be
successful.
The Company may rely, in certain circumstances, on trade secrets to protect
its technology. However, trade secrets are difficult to protect. The Company
seeks to protect its proprietary technology and processes, in part, by
confidentiality agreements with its employees and certain contractors. There can
be no assurance that these agreements will not be breached, that the Company
will have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently discovered by competitors.
To the extent that the Company's employees or its consultants or contractors use
intellectual property owned by others in their work for the Company, disputes
may also arise as to the rights in related or resulting know-how and inventions.
In August 1996, the Company received correspondence from Circadian
Technologies, Inc., an Australian entity, alleging that unspecified trade
secrets and know-how jointly owned by Circadian and the Auckland Division Cancer
Society of New Zealand were, without the consent of Circadian, used in the
development by the Cancer Society and the Company of unspecified compounds for
the Company's red cell program. In subsequent correspondence, Circadian has
indicated that it is seeking compensation in the form of royalties or a lump sum
payment. Based on its investigation of the matter to date, the Company does not
believe that the claims are meritorious. Any future litigation involving these
allegations, however, would be subject to inherent uncertainties, especially in
cases where complex technical issues are decided by a lay jury. There can be no
assurance that, if a lawsuit were commenced, it would not be decided against the
Company, which could have
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a material adverse effect upon the Company's business, financial condition and
results of operations. See "Business -- Patents, Licenses and Proprietary
Rights."
Limited Operating History; History of Losses and Expectation of Future
Losses. The Company's net losses in fiscal years 1992, 1993, 1994 and 1995 and
in the nine months ended September 30, 1996 were $2.3 million, $3.5 million,
$1.8 million, $2.4 million and $7.1 million, respectively. As of September 30,
1996, the Company had an accumulated deficit of approximately $17.1 million. The
Company has not received any revenues from product sales, and all revenues
recognized by the Company to date have resulted from the Company's agreements
with Baxter and federal research grants. All of the Company's planned pathogen
inactivation systems are in the research and development stage. The Company will
be required to conduct significant research, development, testing and regulatory
compliance activities on these products that, together with anticipated general
and administrative expenses, are expected to result in substantial losses at
least through 1998. The estimates above and elsewhere in this Prospectus of the
minimum period through which the Company expects to incur continuing losses are
forward-looking statements that involve risks and uncertainties. There can be no
assurance that the Company will not incur substantial losses beyond such period
as a result of certain factors set forth in this "Risk Factors" section and
elsewhere in this Prospectus. The Company expects that the amount of such losses
will fluctuate from quarter to quarter as a result of differences in the timing
of expenses incurred and potential revenues from its agreements with Baxter, and
such fluctuations may be significant. The Company's ability to achieve a
profitable level of operations will depend on successfully completing
development, obtaining regulatory approvals and achieving market acceptance of
its pathogen inactivation systems. There can be no assurance that the Company
will ever achieve a profitable level of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Reliance on Third-Party Manufacturing; Dependence on Key Suppliers. The
Company has in the past utilized, and intends to continue to utilize, third
parties to manufacture and supply the inactivation compounds for its systems and
Baxter for other system components for use in clinical trials and for the
potential commercialization of its products in development. The Company has no
experience in manufacturing products for commercial purposes and does not have
any manufacturing facilities. Consequently, the Company is dependent on contract
manufacturers for the production of compounds and on Baxter for other system
components for development and commercial purposes.
Under the Company's agreements with Baxter, the Company is responsible for
supplying compounds to Baxter for inclusion in the pathogen inactivation
systems. The Company has contracted with two manufacturing facilities that have
provided sufficient amounts of S-59 to address the anticipated clinical trial
requirements of both the platelet and FFP pathogen inactivation systems. Only
one of the manufacturers is currently performing the complete synthesis of S-59.
If such manufacturer is unable to continue to produce S-59 in commercial
quantities, the Company could experience material delays and shortfalls in
compound supply while the alternative manufacturer validated the complete
process and increased its production capabilities or while the Company
identified another manufacturer and such manufacturer prepared for production.
There can be no assurance that the existing manufacturers or any new
manufacturer will be able to provide commercial quantities of S-59 needed for
the Company's pathogen inactivation systems in the future.
The Company has produced S-303 for use in its red cell pathogen
inactivation system in only limited quantities for its research and preclinical
development requirements. The Company has contracted with a manufacturing
facility for the supply of S-303 for preclinical and clinical studies. No
assurance can be given that this or any new manufacturer will be able to produce
S-303 on a commercial scale or that the Company will be able to enter into
arrangements for the commercial-scale manufacture of S-303 on reasonable terms,
if at all.
In the event that the Company is unable to obtain or retain third-party
manufacturing, it will not be able to commercialize its products as planned. The
Company's dependence upon third parties, including Baxter, for the manufacture
of critical portions of its pathogen inactivation systems may adversely affect
the Company's operating margins and its ability to develop, deliver and sell
products on a timely and competitive basis. Failure of any third-party
manufacturer to deliver the required quantities of products on a timely basis
and at
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commercially reasonable prices would materially adversely affect the Company's
business, financial condition and results of operations. In addition, inclusion
of components manufactured by other third parties could require the Company to
seek new approvals from government regulatory authorities, which could result in
delays in product delivery. There can be no assurance that such approval would
be obtained. In the event the Company undertakes to establish its own commercial
manufacturing capabilities, it will require substantial additional funds,
manufacturing facilities, equipment and personnel.
The Company purchases certain key components of its compounds from a
limited number of suppliers. While the Company believes that there are
alternative sources of supply for these components, establishing additional or
replacement suppliers for any of the components in the Company's compounds, if
required, may not be accomplished quickly and could involve significant
additional costs. Any failure by the Company to obtain any of the components
used to manufacture the Company's compounds from alternative suppliers, if
required, could limit the Company's ability to manufacture its compounds and
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing and Supply"
and "-- Government Regulation."
Risk of Product Liability. The testing, marketing and sale of the
Company's products will entail an inherent risk of product liability, and there
can be no assurance that product liability claims will not be asserted against
the Company. The Company intends to secure limited product liability insurance
coverage prior to the commercial introduction of any product, but there can be
no assurance that the Company will be able to obtain product liability insurance
on acceptable terms or that insurance subsequently obtained will provide
adequate coverage against any or all potential claims. Any product liability
claim against the Company, regardless of its merit or eventual outcome, could
have a material adverse effect upon the Company's business, financial condition
and results of operations.
Environmental Regulation; Use of Hazardous Substances. The Company is
subject to federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials, biological specimens and
wastes. There can be no assurance that the Company will not be required to incur
significant costs to comply with environmental and health and safety regulations
in the future. The Company's research and development involves the controlled
use of hazardous materials, including certain hazardous chemicals and
radioactive materials. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. In the event
of such an accident, the Company could be held liable for any damages that
result and any such liability could exceed the resources of the Company.
Uncertainty Regarding Health Care Reimbursement and Reform. The future
revenues and profitability of biopharmaceutical and related companies as well as
the availability of capital to such companies may be affected by the continuing
efforts of the United States and foreign governments and third-party payors to
contain or reduce costs of health care through various means. In the United
States, given recent federal and state government initiatives directed at
lowering the total cost of health care, it is likely that the U.S. Congress and
state legislatures will continue to focus on health care reform and the cost of
pharmaceuticals and on the reform of the Medicare and Medicaid systems. While
the Company cannot predict whether any such legislative or regulatory proposals
will be adopted, the announcement or adoption of such proposals could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of the products and related treatment of blood components are obtained from
governmental authorities, private health insurers and other organizations, such
as health maintenance organizations ("HMOs"). Third-party payors are
increasingly challenging the prices charged for medical products and services.
The trend toward managed health care in the United States and other countries
and the concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and products, as
well as legislative proposals to reform health care or reduce government
insurance programs, may all result in lower prices for the Company's products.
The cost containment measures that health care payors and providers are
instituting and the effect of any health
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care reform could materially adversely affect the Company's ability to operate
profitably. See "Business -- Health Care Reimbursement and Reform."
Control by Existing Stockholders. Upon the closing of this offering and
the Baxter Private Placement, the Company's present directors and executive
officers and their respective affiliates will beneficially own approximately
29.5% of the outstanding Common Stock. In addition, Baxter will own
approximately 14.0% of the outstanding Common Stock. As a result, these
stockholders will be able to exercise significant influence over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. Such concentration of ownership may also
have the effect of delaying, preventing or deterring a change in control of the
Company. See "Principal Stockholders" and "Description of Capital
Stock -- Antitakeover Effects of Provisions of Charter Documents and Delaware
Law."
Need for Additional Funds. Through December 31, 1996, Baxter has provided
funding to the Company in the form of equity investments, research funding,
license fees and milestone payments, aggregating approximately $20.7 million.
The Company's cash requirements may vary materially from those now planned as a
result of additional research and development, product testing results,
regulatory requirements, competitive pressures and technological advances. In
addition, the Company may require substantial funds for its long-term product
development, marketing programs and operating expenses. There can be no
assurance that any required funds will be available on acceptable terms, if at
all. If additional funds are raised by issuing equity securities, substantial
dilution to existing stockholders may result. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Shares Eligible for Future Sale. Sales of substantial numbers of shares of
Common Stock in the public market following this offering could adversely affect
the market price of the Common Stock. Upon the closing of this offering and the
Baxter Private Placement, the Company will have outstanding an aggregate of
8,885,878 shares of Common Stock, based upon the number of shares outstanding as
of December 31, 1996. Of these shares, all of the shares sold in this offering
will be freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), unless such shares
are held by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act ("Affiliates"), in which case they will be subject to
the volume, manner of sale and other conditions of Rule 144. The remaining
6,885,878 shares of Common Stock held by existing stockholders (the "Restricted
Shares") and the shares sold pursuant to the Baxter Private Placement are
"restricted securities" as that term is defined in Rule 144. Restricted Shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 promulgated under the
Securities Act. As a result of contractual restrictions and the provisions of
Rule 144 and Rule 701, additional shares will be available for sale in the
public market as follows: (i) no Restricted Shares will be eligible for
immediate sale on the date of this Prospectus, (ii) 5,892,000 Restricted Shares,
164,665 shares of Common Stock issuable upon exercise of currently outstanding
options and 52,152 shares of Common Stock issuable upon exercise of currently
outstanding warrants will be eligible for sale upon expiration of certain
lock-up agreements 180 days after the date of this Prospectus and (iii) the
remainder of the Restricted Shares will be eligible for sale from time to time
thereafter upon expiration of their respective two-year holding periods.
Pursuant to an agreement between the Company and the holders (or their permitted
transferees) of approximately 4,512,345 shares of Common Stock (plus 496,878
shares sold pursuant to the Baxter Private Placement), these holders are
entitled to certain rights with respect to the registration of such shares under
the Securities Act. See "Description of Capital Stock" and "Shares Eligible for
Future Sale."
Effects of Certain Charter and Bylaw Provisions. The Company's Amended and
Restated Certificate of Incorporation (the "Restated Certificate") authorizes
the Board of Directors to issue up to five million shares of Preferred Stock and
to determine the price, rights, preferences and privileges, including voting
rights, of those shares without any further vote or action by the stockholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The Restated Certificate and Bylaws, among other
things, provide for a classified Board of Directors, require that stockholder
actions occur at duly called meetings of the stockholders, limit who may call
special meetings of stockholders, do not permit cumulative voting in the
election of directors and require advance notice of stockholder proposals and
director nominations. These provisions contained in the Company's charter
documents and certain applicable provisions of Delaware law could serve to
depress the
16
<PAGE> 18
Company's stock price. In addition, these and other provisions could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company, discourage a hostile bid or delay,
prevent or deter a merger, acquisition or tender offer in which the Company's
stockholders could receive a premium for their shares, or a proxy contest for
control of the Company or other change in the Company's management. See
"Management" and "Description of Capital Stock."
Lack of Prior Public Market; Possible Volatility of Stock Price. Prior to
this offering, there has been no public market for the Common Stock, and there
can be no assurance that an active trading market will develop or be sustained.
The initial public offering price for the Common Stock to be sold in this
offering will be determined by agreement between the Company and the
Underwriters and may bear no relationship to the price at which the Common Stock
will trade after the closing of this offering. The market price of the shares of
Common Stock, like that of the common stock of many other companies in similar
industries, is likely to be highly volatile. Factors such as the announcements
of scientific achievements or new products by the Company or its competitors,
governmental regulation, health care legislation, developments in patent or
other proprietary rights of the Company or its competitors, including
litigation, fluctuations in the Company's operating results and market
conditions for health care stocks in general could have a significant impact on
the future price of the Common Stock. In addition, the stock market has from
time to time experienced extreme price and volume fluctuations, which may be
unrelated to the operating performance of particular companies. In the past,
securities class action litigation has often been instituted following periods
of volatility in the market price for a company's securities. Such litigation
could result in substantial costs and a diversion of management attention and
resources, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Underwriters."
Dilution. Purchasers of the Common Stock offered hereby will suffer an
immediate dilution in the net tangible book value per share. Such purchasers
will experience additional dilution upon the exercise of outstanding stock
options and warrants. Future capital funding transactions may also result in
dilution to purchasers in this offering. See "Dilution."
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $15.00 per share are estimated to be approximately $26.9 million
(approximately $31.1 million if the Underwriters' over-allotment option is
exercised in full), after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company. Pursuant to the Baxter
Private Placement, the Company plans to sell directly to Baxter shares of its
Common Stock for an aggregate purchase price of approximately $6.9 million
pursuant to an existing agreement with the Company. Total net proceeds from this
offering and the Baxter Private Placement are estimated to be approximately
$33.8 million.
The Company expects to use approximately $15 million of the proceeds of
this offering for research and development and funding of clinical trials in
support of its pathogen inactivation systems, approximately $3 million for
general and administrative expenses and approximately $2 million for capital
expenditures. The Company intends to use the remaining proceeds for general
corporate purposes, including the funding of working capital requirements. A
portion of the net proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. There are no present understandings, commitments or agreements
with respect to any material acquisition of other businesses, products or
technologies. The amounts and timing of the Company's actual expenditures for
each purpose may vary significantly depending upon numerous factors, including
the status of the Company's product development efforts, regulatory approvals,
competition, marketing and sales activities and the market acceptance of any
products introduced by the Company. Pending such uses, the Company intends to
invest the net proceeds of this offering in short-term, investment-grade,
interest-bearing securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends since its
inception. The Company currently intends to retain any future earnings to
finance the growth and development of its business and does not intend to pay
any cash dividends in the foreseeable future. Future dividends, if any, will be
determined by the Board of Directors.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on an actual basis, (ii) on a pro forma basis after
giving effect to the Warrant Exercise, the conversion of all outstanding shares
of Preferred Stock into Common Stock and the authorization of 5,000,000 shares
of undesignated Preferred Stock upon the closing of this offering, and (iii) as
adjusted to give effect to the Baxter Private Placement and the sale of
2,000,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $15.00 per share (after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company). This table should be read in conjunction with the Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
--------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations, less current portion........... $ 107 $ 107 $ 107
Stockholders' equity:
Preferred Stock, $.001 par value; 3,199,942 shares
authorized, 3,001,630 shares issued and outstanding,
actual; 5,000,000 shares authorized, no shares issued
and outstanding, pro forma and as adjusted(1)........ 3 -- --
Common Stock, $.001 par value, 4,681,833 shares
authorized, 1,906,757 shares issued and outstanding,
actual; 10,000,000 shares authorized, 6,366,950
shares issued and outstanding, pro forma; 50,000,000
shares authorized, 8,863,828 shares issued and
outstanding, as adjusted(1).......................... 2 6 9
Additional paid-in capital................................ 25,425 25,619 59,447
Notes receivable from stockholders........................ (76) (76) (76)
Deferred compensation..................................... (377) (377) (377)
Accumulated deficit....................................... (17,116) (17,116) (17,116)
------ ------- -------
Total stockholders' equity........................... 7,861 8,056 41,887
------ ------- -------
Total capitalization................................. $ 7,968 $ 8,163 $ 41,994
====== ======= =======
</TABLE>
- ---------------
(1) Excludes as of September 30, 1996: (i) 423,595 shares of Common Stock
subject to outstanding options under the Company's 1996 Equity Incentive
Plan and 552,887 shares reserved for future issuance thereunder, (ii)
220,500 shares of Common Stock reserved for future issuance under the
Company's Employee Stock Purchase Plan and (iii) 35,478 shares of Preferred
Stock subject to outstanding warrants, which will convert into warrants to
purchase 52,152 shares of Common Stock upon the closing of this offering.
See "Management -- Equity Incentive Plans" and Notes 4 and 7 of Notes to
Financial Statements.
19
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1996 was approximately $8,056,000, or $1.27 per share. Pro forma net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the pro forma number of shares of
Common Stock outstanding, after giving effect to the Warrant Exercise and the
conversion of all outstanding shares of Preferred Stock into Common Stock upon
the closing of this offering. After giving effect to the Baxter Private
Placement, the pro forma net tangible book value at September 30, 1996 would
have been $14,987,000 or approximately $2.18 per share. After giving effect to
the sale by the Company of 2,000,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $15.00 per share (after deducting
underwriting discounts and commissions and estimated offering expenses), the pro
forma net tangible book value at September 30, 1996 would have been $41,887,000,
or approximately $4.73 per share. This represents an immediate increase in pro
forma net tangible book value of $2.55 per share to existing stockholders
(including the Baxter Private Placement) and an immediate dilution of $10.27 per
share to new investors of Common Stock in this offering, as illustrated by the
following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $15.00
Pro forma net tangible book value per share before the offering... $1.27
Increase attributable to the Baxter Private Placement............. .91
------
--
Pro forma net tangible book value per share after Baxter Private
Placement...................................................... 2.18
Increase per share attributable to new investors.................. $2.55
------
--
Pro forma net tangible book value per share after the offering...... 4.73
-------
-----
Dilution per share to new investors................................. $10.27
============
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996 (after giving effect to the Warrant Exercise, the Baxter Private Placement
and the conversion of all outstanding shares of Preferred Stock into Common
Stock upon the closing of this offering), the difference between the number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price per share paid by existing stockholders (including Baxter)
and by the new investors, before deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company, at an
assumed initial public offering price of $15.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 6,863,828 77.4% $31,964,000 51.6% $ 4.66
New investors............... 2,000,000 22.6 30,000,000 48.4 15.00
------- ----- -------- -----
Total............. 8,863,828 100.0% 61,964,000 100.0%
======= ===== ======== =====
</TABLE>
The calculation of pro forma net tangible book value per share and the
other above computations assumes no exercise of outstanding stock options to
purchase 423,595 shares of Common Stock at a weighted average exercise price of
$2.30 per share and warrants to purchase 35,478 shares of Preferred Stock at a
weighted average exercise price of $5.56 per share, which will convert into
warrants to purchase 52,152 shares of Common Stock upon the closing of this
offering. If all such outstanding options and warrants were exercised for cash,
the pro forma net tangible book value per share immediately after the closing of
this offering would be $4.61 per share. This represents an immediate dilution in
pro forma net tangible book value of $10.39 per share to new investors. See
"Management -- Equity Incentive Plans" and Notes 4 and 7 of Notes to Financial
Statements.
20
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's Financial Statements and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein. The statement of operations data for the years ended
December 31, 1993, 1994 and 1995 and the balance sheet data as of December 31,
1994 and 1995 are derived from financial statements of the Company that have
been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this Prospectus. The statement of operations data for the period
from September 19, 1991 (inception) through December 31, 1992 and the balance
sheet data as of December 31, 1992 and 1993 are derived from financial
statements of the Company audited by Ernst & Young LLP that are not included
herein. The statement of operations data for the nine months ended September 30,
1995 and 1996 and the balance sheet data as of September 30, 1996 are derived
from unaudited financial statements included elsewhere in this Prospectus. The
unaudited financial statements have been prepared on the same basis as the
audited financial statements and, in the opinion of management, contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's operating results and financial position for
such periods. The operating results for the nine months ended September 30, 1996
are not necessarily indicative of the results to be expected for any other
interim period or the current or any future fiscal year.
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 19,
1991
(INCEPTION) NINE MONTHS
THROUGH YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------------- -------------------
1992(1) 1993 1994 1995 1995 1996
------------- ------- ------- --------- ------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................... $ -- $ 230 $ 4,796 $ 6,799 $ 3,663 $ 3,067
Operating expenses:
Research and development................ 1,479 2,485 5,680 8,125 6,550 8,920
General and administrative.............. 905 1,210 1,194 1,517 1,048 1,620
------- ------- ------- --------- ------- ---------
Total operating expenses........... 2,384 3,695 6,874 9,642 7,598 10,540
------- ------- ------- --------- ------- ---------
Loss from operations...................... (2,384) (3,465) (2,078) (2,843) (3,935) (7,473)
Other income (expense), net............... 61 (50) 278 483 343 356
------- ------- ------- --------- ------- ---------
Net loss.................................. $(2,323) $(3,515) $(1,800) $ (2,360) $(3,592) $ (7,117)
======= ======= ======= ========= ======= =========
Pro forma net loss per share(2)........... $ (0.38) $ (1.08)
Shares used in computing pro forma net loss
per share(2).............................. 6,233,242 6,581,628
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996
------------- ------- ------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 225 $ 6,076 $ 7,802 $ 9,659 $ 9,476
Working capital........................... 23 3,884 5,865 7,263 5,964
Total assets.............................. 821 6,807 9,684 11,349 11,769
Capital lease obligations,
less current portion.................... -- -- 94 32 107
Accumulated deficit....................... (2,323) (5,838) (7,639) (9,999) (17,116)
Total stockholders' equity (deficit)...... 532 (516) 5,439 8,663 7,861
</TABLE>
- ---------------
(1) The Company's financial data is not presented separately for 1991 as the
Company did not commence operations until subsequent to December 31, 1991.
(2) See Note 1 of Notes to Financial Statements for a description of the method
used in computing the pro forma net loss per share.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the Notes thereto included elsewhere in this Prospectus. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from
those discussed in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
OVERVIEW
Since its inception in 1991, Cerus has devoted substantially all of its
efforts and resources to the research, development and clinical testing of
techniques and systems for inactivating pathogens in transfusion blood
components. The Company has been unprofitable since inception and, as of
September 30, 1996, had an accumulated deficit of approximately $17.1 million.
All of the Company's planned pathogen inactivation systems are in the research
and development stage. The Company will be required to conduct significant
research, development, testing and regulatory compliance activities on these
products that, together with anticipated general and administrative expenses,
are expected to result in substantial losses at least through 1998. The
Company's ability to achieve a profitable level of operations will depend on
successfully completing development, obtaining regulatory approvals and
achieving market acceptance of its pathogen inactivation systems. There can be
no assurance that the Company will ever achieve a profitable level of
operations. To date, the Company's principal sources of capital have been
private equity financings and funds provided by Baxter under development and
commercialization agreements, as well as United States government grant funding,
interest income and lease financings.
In December 1993, Cerus entered into a development and commercialization
agreement with Baxter to develop a system for inactivation of pathogens in
platelets used for transfusions. The agreement provides for Baxter to share
costs associated with research and development, preclinical studies and clinical
trials for the system. The agreement also provides for a sharing of revenues
after each party is reimbursed its cost of goods above a specified level. Under
this agreement, Baxter purchased 125,000 shares of Series C Preferred Stock
(which will be converted into 183,750 shares of Common Stock upon the closing of
this offering) for an aggregate purchase price of $1.0 million and paid the
Company up-front license fees and milestone and development payments totaling
$5.2 million. The Company recognizes the license fees as revenue as subsequent
milestones are achieved. Through September 30, 1996, approximately $2.0 million
of the license fees have been recognized as revenue, and approximately $1.8
million in milestone payments have been received and recognized as revenue. In
January and July 1995, Cerus received approximately $2.6 million from Baxter in
connection with interim funding agreements related to the development of
pathogen inactivation systems for FFP and red blood cells. In April 1996, Cerus
entered into a second development and commercialization agreement with Baxter,
principally focused on the FFP and red blood cell pathogen inactivation systems.
Under this agreement, the Company and Baxter are to share gross profits from
sales of inactivation system disposables, after deducting from such gross
profits a specified percentage allocation to be retained by the marketing party
for marketing and administration expenses. Under this agreement, Baxter
purchased $6.0 million in Series E Preferred Stock of Cerus in April and July
1996. In addition, this agreement provides for Baxter to make three additional
investments of $5 million each in the Common Stock of the Company, at 120% of
the market price at the time of each investment, subject to the achievement of
certain milestones. In January 1997, the Company and Baxter amended the Platelet
Agreement to provide that the Company would receive an additional 2.2% of the
shared revenue from the sale of the platelet pathogen inactivation systems in
return for payment by the Company to Baxter of $5.5 million in 1997. See
"Business -- Alliance with Baxter" and Notes 2 and 7 of Notes to Financial
Statements.
To date, the Company has not received any revenues from product sales and
it will not derive revenue from product sales unless and until one or more
planned products receives regulatory approval and achieves market acceptance.
The Company anticipates that its sources of revenue until product sales occur
will be limited to payments under development and commercialization agreements
with Baxter in the area of blood component pathogen inactivation, payments from
the United States government under research grant
22
<PAGE> 24
programs, payments from future collaboration agreements, if any, and interest
income. Under the current agreements with Baxter, all research, development,
preclinical and clinical costs of the pathogen inactivation projects are shared
equally by Cerus and Baxter. Because more of such research and development is
typically performed internally at Cerus than at Baxter and because Cerus is
generally responsible for engaging third parties to perform certain aspects of
these projects, Baxter typically has made periodic balancing payments to the
Company. Through September 30, 1996, the Company had recognized approximately
$12.6 million in revenue under its agreements with Baxter, including the license
fee and milestone amounts described above, and approximately $2.3 million under
United States government grants.
The Company's business is subject to significant risks, including, but not
limited to, the risks inherent in its research and development efforts,
including clinical trials, uncertainties associated both with obtaining and
enforcing its patents and with the patent rights of others, the lengthy,
expensive and uncertain process of seeking regulatory approvals, uncertainties
regarding government reforms and of product pricing and reimbursement levels,
technological change and competition, manufacturing uncertainties, and
dependence on Baxter and other third parties. The Company's pathogen
inactivation systems are in the research and development stage and will require
additional preclinical and clinical testing prior to submission of any
regulatory application for commercial use. The Company currently does not expect
to file a product approval application with the FDA or corresponding regulatory
filings in Europe for its platelet pathogen inactivation system or for any of
its other planned products prior to 1998. No assurance can be given that any of
the Company's development programs will be successfully completed, that any
further IND application will become effective or that additional clinical trials
will be allowed by the FDA or other regulatory authorities, that clinical trials
will commence as planned, that required United States or foreign regulatory
approvals will be obtained on a timely basis, if at all, or that any products
for which approval is obtained will be commercially successful.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
Revenue. Revenue for the nine months ended September 30, 1995 was
approximately $3.7 million as compared to approximately $3.1 million for the
same period in 1996. Revenue from Baxter decreased by approximately $597,000
from approximately $3.1 million for the nine months ended September 30, 1995 to
approximately to $2.5 million for the same period in 1996, primarily due to
increased research and development spending by Baxter resulting in a reduced
balancing payment to the Company. Grant revenue was generally unchanged from the
nine months ended September 30, 1995 compared to the same period in 1996.
Research and Development Expenses. The Company's research and development
expenses increased from approximately $6.6 million for the nine months ended
September 30, 1995 to approximately $8.9 million for the same period in 1996.
The increase is primarily attributable to costs associated with personnel
increases and to increased third-party costs associated with preclinical studies
and clinical trials for the platelet pathogen inactivation system. The Company
anticipates that research and development expenses will increase in the future
as it expands its pathogen inactivation system development efforts and related
clinical trials.
General and Administrative Expenses. General and administrative expenses
increased from approximately $1.0 million for the nine months ended September
30, 1995 to approximately $1.6 million for the same period in 1996. The increase
is primarily the result of increased personnel costs, professional services and
other costs incurred in connection with the April 1996 Baxter agreement, and
general expenses in support of the Company's increased product development
activities. The Company anticipates that general and administrative expenses
will increase in the future as additional personnel are added to support its
business operations.
Other Income (Expense), Net. Other income (expense), net, consists
primarily of interest income on cash balances and interest expense associated
with capital leases, both of which were at approximately the same level for the
nine months ended September 30, 1995 and 1996.
23
<PAGE> 25
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Revenue. Revenue earned under agreements with Baxter increased from
$200,000 in 1993 to approximately $3.9 million in 1994 and to approximately $6.0
million in 1995. The increase in 1994 was primarily related to the commencement
of the platelet program in late 1993 and includes approximately $3.9 million in
license fees, milestone and development revenue. The increase in 1995 resulted
primarily from revenue associated with the interim funding agreements for FFP
and red blood cells. Government grant revenue increased from approximately
$30,000 in 1993 to approximately $895,000 in 1994 as a result of activity under
several grants transferred to Cerus and two grants awarded to Cerus during 1994.
Grant revenue decreased to approximately $751,000 in 1995, primarily due to
completion of funding under certain grants during the year. Revenues from the
arrangements with Baxter, as a percentage of total revenues, were 87% in 1993,
81% in 1994 and 89% in 1995.
Research and Development Expenses. Research and development expenses
increased from approximately $2.5 million in 1993 to approximately $5.7 million
in 1994 and to approximately $8.1 million in 1995. The increase in 1994 was
attributable primarily to increased activity on the platelet pathogen
inactivation program. The increase in 1995 was due principally to toxicology
studies, compound manufacturing development and initiation of clinical trials
for the platelet program, as well as to increased spending devoted to the FFP
and red blood cell programs. A significant portion of the increase was the
result of increased payroll and other personnel expenses, related laboratory
supplies, equipment and facilities expansion.
General and Administrative Expenses. General and administrative expenses
were approximately $1.2 million in each of 1993 and 1994 and approximately $1.5
million in 1995. The increase in 1995 over 1994 and 1993 was primarily
attributable to increased personnel levels associated with the expansion of the
Company's operations.
Other Income (Expense), Net. Interest income was approximately $26,000 in
1993, approximately $321,000 in 1994 and approximately $500,000 in 1995. These
increases were attributable primarily to increased average cash balances related
to proceeds from the Company's financings and funding under the Baxter platelet
agreement. Interest expense was approximately $76,000 in 1993, $43,000 in 1994
and $17,000 in 1995. Interest expense of approximately $76,000 in 1993 and
approximately $33,000 in 1994 related to bridge financings from certain of the
Company's stockholders. The remaining interest expense in 1994 and all interest
expense in 1995 related to lease financings.
LIQUIDITY AND CAPITAL RESOURCES
From inception to September 30, 1996, Cerus has financed its operations
primarily through private placements of preferred and common equity securities
totaling approximately $24.8 million and project funding provided by Baxter
totaling $13.7 million. During that period, the Company received approximately
$2.3 million under United States government grants and approximately $1.2
million in interest income. At September 30, 1996, the Company had cash and cash
equivalents of approximately $9.5 million.
In 1993, net cash provided by operating activities of approximately $1.7
million was the result of $5.2 million in license fees and milestone and
development payments received from Baxter during the year, offset principally by
a $3.5 million net loss for the year. Net cash used in operating activities for
1994, 1995 and the nine months ended September 30, 1996, was approximately $2.8
million, $3.4 million and $5.9 million, respectively, resulting primarily from
net losses. From inception through September 30, 1996, net cash used in
investing activities of approximately $1.5 million resulted from purchases of
equipment and furniture and leasehold improvements.
At December 31, 1995, the Company's net operating loss carryforwards were
approximately $7.2 million and $1.8 million for federal and state income tax
purposes, respectively. The Company's federal research and development tax
credit carryforwards were approximately $300,000 for federal income tax purposes
at December 31, 1995. The federal net operating loss and tax credit
carryforwards expire at various dates from 2007 to 2010. The California state
net operating loss expires in 2000. The Tax Reform Act of 1986 and state tax
statutes contain provisions relating to changes in ownership that may limit the
utilization in any given year
24
<PAGE> 26
of available net operating loss carryforwards and research and development
credits. See Note 5 of Notes to Financial Statements.
The Company's future capital requirements and the adequacy of its available
funds will depend on many factors, including progress of the platelet program
and the related clinical trials, progress of the FFP and red blood cell program,
achievement of milestones leading to milestone payments and equity investments,
regulatory approval and successful commercialization of the Company's pathogen
inactivation systems, costs related to creating, maintaining and defending the
Company's intellectual property position, and competitive developments. The
Company believes that its available cash balances, together with the net
proceeds of this offering and anticipated cash flows from existing Baxter and
grant arrangements, will be sufficient to meet its capital requirements through
1999. This estimate of the period for which the Company expects its available
cash balances, net proceeds and anticipated cash flows to be sufficient to meet
its capital requirements is a forward-looking statement that involves risks and
uncertainties. There can be no assurance that the Company will be able to meet
its capital requirements for this period as a result of certain factors set
forth under "Risk Factors" and elsewhere in this Prospectus. In the event that
additional capital is required, the Company may seek to raise that capital
through public or private equity or debt financings or through additional
collaborative arrangements or government grants. Future capital funding
transactions may result in dilution to purchasers in this offering. There can be
no assurance that such capital will be available on favorable terms, if at all.
25
<PAGE> 27
BUSINESS
OVERVIEW
Cerus is developing systems designed to improve the safety of blood
transfusions by inactivating infectious pathogens in blood components
(platelets, FFP and red blood cells) used for transfusion and inhibiting the
leukocyte activity that is responsible for certain adverse immune and other
transfusion-related reactions. Preclinical studies conducted by the Company have
indicated the ability of these systems to inactivate a broad array of viral and
bacterial pathogens that may be transmitted in blood component transfusions and
to inhibit leukocyte activity. The Company believes that, as a result of the
mechanism of action of its proprietary technology, its systems also have the
potential to inactivate many new pathogens before they are identified and before
tests have been developed to detect their presence in the blood supply. Because
the Company's systems are being designed to inactivate rather than merely test
for pathogens, the Company's systems also have the potential to reduce the risk
of transmission of pathogens that would remain undetected by testing.
INDUSTRY BACKGROUND
Blood Supply Market. Blood transfusions are required to treat a variety of
medical conditions, including anemia, low blood volume, surgical bleeding,
trauma, acquired and congenital bleeding disorders and chemotherapy-induced
blood deficiencies. Worldwide, over 90 million whole blood donations occur each
year. Approximately 39 million of those donations occur in North America,
Western Europe and Japan.
Whole blood is composed of plasma, the liquid portion of blood containing
essential clotting proteins, and three cellular blood components: platelets, red
blood cells and white blood cells (leukocytes). Platelets are cellular
components essential to coagulation, while red blood cells carry oxygen to
tissues and carbon dioxide to the lungs. Leukocytes play a critical role in
immune and other defense systems in donors, but can cause harmful immune
transfusion-related reactions in or transmit disease to recipients.
Blood collection centers periodically experience shortages of critical
blood components due to temporary increases in demand, reduced donor
availability during holiday periods and the limited shelf life of cellular blood
components. To efficiently allocate the limited available blood supply and to
optimize transfusion therapy, essentially all donated blood is separated into
platelets, plasma and red cells. These blood components are obtained either by
manually processing donor units of whole blood or by apheresis, a process in
which specific blood components collected from a donor are retained for
transfusion, while the other components are returned to the donor.
Patients requiring transfusions are typically treated with the specific
blood component required for their particular deficiency, except in cases of
rapid, massive blood loss, where whole blood may be transfused. Platelets are
often used to treat cancer patients following chemotherapy or organ
transplantation. Red cells are frequently administered to patients with trauma
or surgical bleeding, acquired chronic anemia or genetic disorders, such as
sickle cell anemia. FFP is generally used to control bleeding. Plasma can also
be separated, or "fractionated," into different parts that are used to expand
blood volume, fight infections or treat diseases such as hemophilia.
Blood Supply Contaminants. A primary goal of every blood collection center
is to provide blood components for transfusion that are free of viruses,
bacteria, protozoans and leukocytes. Despite recent improvements in testing and
processing of blood, patients receiving transfusions of blood components face a
number of significant risks from blood contaminants, as well as adverse immune
and other transfusion-related reactions induced by leukocytes. Viruses such as
hepatitis B (HBV), hepatitis C (HCV), human immunodeficiency virus (HIV),
cytomegalovirus (CMV) and human T-cell lymphotropic virus (HTLV) can present
life-threatening risks. Bacteria, the most common agents of
transfusion-transmitted disease, can cause sepsis, which can result in serious
illness or death. Many other agents can transmit disease during transfusion,
including the protozoans that cause malaria and Chagas' disease.
Infectious pathogens are not the only cause of adverse events arising out
of the transfusion of blood components. Leukocytes present in a blood unit can
multiply after transfusion, mounting an often fatal "graft-
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<PAGE> 28
versus-host" immune response against the recipient. Similarly, alloimmunization,
an immune response that can develop from repeated exposure to transfused
leukocytes, can significantly reduce the efficacy of subsequent transfusions as
a result of the production of antibodies. Moreover, leukocytes themselves may
harbor and transmit bacteria and infectious viruses, such as HIV, CMV and HTLV.
Emerging and unidentified pathogens also present a threat to the blood
supply, a problem illustrated by the recent history of HIV. It is estimated that
HIV was present in the blood supply for at least seven years before it was
identified as the causative agent of AIDS and at least eight years before a test
was commercially implemented to detect the presence of HIV antibodies in donated
blood. During those years, many transfusion recipients were infected with the
virus, including approximately 70% of patients with severe hemophilia.
The risk of transmission of any of these pathogens from an infected donor
is compounded by a number of factors. If a unit of blood contains an infectious
pathogen, dividing the blood into its components may expose three or more
patients to the pathogen in that unit. Similarly, patient populations that
require frequent transfusions, such as patients with cancer, suppressed immune
systems, congenital anemias and kidney and liver disorders, experience a
heightened risk of infection due to multiple exposures.
Current Approaches to Address Blood Supply Contamination. Public awareness
in recent years of the significant rates of hepatitis and HIV transmission from
blood transfusions has led to expanded efforts to improve the safety of the
blood supply. For many years, the only approach available to reduce the risk of
transmission of diseases was donor screening interviews. In addition to required
donor screening, diagnostic tests have been developed to detect the presence of
certain infectious pathogens known to be transmitted in blood. However, there
remain a number of other blood-borne pathogens for which tests have not been
routinely administered or even developed. The table below identifies the
significant infectious pathogens known to be transmitted through transfusions of
platelets, FFP and red cells:
<TABLE>
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------
ROUTINELY SCREENED
FOR IN THE
UNITED STATES
FAMILY INFECTIOUS PATHOGEN DISEASE
----------------------------------------------------------------------------------------------------
Hepatitis viruses HBV, HCV Hepatitis Yes
HGV Hepatitis No
Retroviruses HIV-1 and -2 AIDS Yes
HTLV-I and -II Malignant lymphoproliferative Yes
disorders, neuropathy
Herpes viruses CMV CMV retinitis, hepatitis, No
pneumonia
EBV Epstein-Barr Syndrome No
HHV-8 Kaposi's Sarcoma No
Parvoviruses B19 Aplastic anemia No
Bacteria Gram negative, gram positive Sepsis No
Treponema pallidum Syphilis Yes
Borrelia burgdorferi Lyme disease No
Protozoans T. cruzi Chagas' disease No
B. microti Babesiosis No
L. donovani Leishmaniasis No
Plasmodium sp. Malaria No
----------------------------------------------------------------------------------------------------
</TABLE>
Although donor screening and diagnostic testing of donated blood have been
successful in reducing the incidence of transmission of many of these known
pathogens, testing has a number of limitations. As the preceding table
indicates, tests are currently performed for only a limited number of
blood-borne pathogens. Moreover, these tests occasionally fail, and human
errors, such as mistesting or mislabeling, and other mistakes further expose
patients to contaminated blood. All tests currently used in blood centers, with
the exception of the recently developed p24 antigen test for HIV-1, are antibody
tests, which are intended to detect antibodies directed against a pathogen,
rather than to detect the pathogen itself. All of these tests can
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<PAGE> 29
fail if performed during the "infectivity window," that is, early in the course
of an infection before antibodies or p24 antigen appear in detectable
quantities. Similarly, tests for viral infection may be ineffective in detecting
a genetic variant of the virus that the test was not developed to detect. For
instance, certain strains of HIV, such as Subtype O, are sometimes not detected
in the standard HIV tests. Finally, there are no current tests available to
screen effectively for many emerging pathogens, and testing cannot be performed
for pathogens that have yet to be identified. As a result of these limitations,
a number of infectious pathogens still pass into the blood supply.
The risk of pathogen transmission can be significant when no diagnostic
test to detect the blood-borne pathogen is available, such as in the case of
emerging and unidentified pathogens. The risk associated with untested blood
components is illustrated by the table below, which indicates the approximate
risk (per transfusion unit) in the United States for transmission of HIV and HCV
prior to and after the development of diagnostic tests.
<TABLE>
<CAPTION>
PRE-TESTING POST-TESTING
PATHOGEN DISEASE RISK RISK
- -------- ---------- ----------- -------------
<S> <C> <C> <C>
HIV AIDS 1 in 2,500 1 in 400,000
HCV Hepatitis 1 in 220 1 in 3,300
</TABLE>
The risk of transmission of pathogens may vary greatly because of regional
or demographic differences. For example, prior to the implementation of
diagnostic testing, the risk of HIV in at least one metropolitan area was as
high as one in 50 per transfusion unit. Furthermore, for patients who receive
multiple blood transfusions, the risk of pathogen transmission increases
approximately in proportion to the number of transfusion units received.
In addition, there are many known pathogens for which tests are not
routinely performed. In the United States, tests are not routinely performed to
detect bacteria (other than the bacterium that causes syphilis), although the
risk of transmitting bacteria from a random donor is estimated to be one in 250.
A typical pooled random donor therapeutic dose of platelets is provided by six
random donors, with the risk of transmitting bacteria estimated to be one in 42.
In a study conducted in Hong Kong of bone marrow transplant patients receiving
repeated platelet transfusions, the incidence of symptomatic septicemia (a
potentially fatal infection) was reported to be one in 16 patients.
In light of these continuing concerns, many patients have attempted to
mitigate the risks of transfusion through "autologous donation," donation of
their own blood for anticipated future use, or, where autologous donation is
impracticable, through the designation of donors such as family members.
Although autologous donations eliminate many risks, the blood collected is still
subject to the risk of bacterial growth during storage and is rarely available
in emergency situations. In addition, the statistical incidence of positive
diagnostic test results from designated donor blood has been found to be as high
as in random donor blood.
Blood centers and health care providers have initiated additional
procedures in an effort to address pathogen transmission issues. For example,
platelet apheresis is sometimes used to limit donor exposure from pooled,
manually collected platelets. In addition, blood centers may quarantine single
donor plasma apheresis units until after the infectivity window has elapsed,
followed by confirmatory retesting of the donor, if the donor is available, to
verify the safety of the donated plasma. However, quarantining plasma can be
unwieldy, expensive and difficult to manage in inventory. Moreover, a quarantine
cannot be used with platelets and red blood cells because these components have
shelf lives that are shorter than the infectivity window related to antibody
production. Although no commercial processes are currently available to
eliminate pathogens in platelets and red cells, a number of pathogen
inactivation methods are used commercially in Europe for FFP, including
treatment with solvent-detergent and methylene blue. Both of these processes can
result in degradation of plasma proteins. In addition, because the
solvent-detergent process pools hundreds of units of plasma, the potential risk
of transmitting pathogens not inactivated by the process, such as parvovirus
B19, is increased. The Blood Products Advisory Committee has recently
unanimously recommended that solvent-detergent be approved for use in treating
FFP.
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<PAGE> 30
The current method used by blood centers to inactivate leukocytes utilizes
gamma (x-ray) irradiation. This nonspecific method for inactivating leukocytes
has a narrow window of efficacy: insufficient treatment can leave viable
leukocytes in the blood, while excessive treatment can impair the therapeutic
function of the desirable blood components being transfused. Leukocyte depletion
by filtration decreases the concentration of leukocytes in transfusion units,
but does not inactivate or completely eliminate leukocytes.
Economic Costs of Blood Supply Contamination. In economically developed
countries, many of the tests and inactivation measures described above are
mandated by regulatory agencies, resulting in a safer and more uniform blood
supply, but also significantly increasing costs of processing and delivering
blood products. In the United States, based on a study of eight hospitals and
blood centers conducted in July 1996 on behalf of the Company (the "Cost
Study"), the estimated base cost for a transfusion unit of apheresis platelets
ranges from approximately $400 to $640 and for a transfusion unit of random
donor platelets ranges from approximately $220 to $440. These estimates include
donor screening and diagnostic tests, such as those for HIV, HTLV, HBV and HCV.
The table below indicates, based on the Cost Study, the estimated range of costs
to hospitals for the additional procedures for platelet transfusions described
above for each of apheresis and random donor platelet transfusion units. The
frequency of use and additional charge for each procedure vary widely.
<TABLE>
<CAPTION>
ADDED COST PER
----------------------------------------------
APHERESIS RANDOM DONOR
PROCEDURE TRANSFUSION UNIT TRANSFUSION UNIT
---------------------------------------- --------------------------- ----------------
<S> <C> <C>
Gamma irradiation....................... $ 5 to $55 $30 to $325
CMV testing............................. $15 to $35 $90 to $210
Leukocyte filtration.................... $20 to $75 $20 to $ 75
Designated donor........................ $15 to $50 --
</TABLE>
The maximum aggregate estimated costs at each blood center in the study
ranged from approximately $450 to $700 for each apheresis transfusion unit and
from approximately $375 to $725 for each random donor transfusion unit (assuming
performance of only those procedures that are performed at such center).
Moreover, the development and widespread use of testing for many unusual or
low-incidence pathogens may not be cost-effective to undertake. For example, the
development of tests to detect the presence of all forms of harmful bacteria
would be extremely expensive. As a result, the only test regularly conducted to
detect the presence of bacteria is the test for the bacterium that causes
syphilis. With managed health care organizations and other third-party payors
increasingly challenging the cost of medical services performed, these cost
limitations may become more pronounced in the future.
The continuing risk of transmission of serious diseases through transfusion
of contaminated blood components from both known and unknown pathogens, together
with the limitations of current approaches to providing a safe blood supply,
have created the need for a new approach to pathogen inactivation that is safe,
easy to implement and cost-effective. To address this need, a successful
approach should have broad application in the effective inactivation of
clinically significant pathogens, whether or not currently identified, while
providing therapeutically functional blood components.
THE CERUS SOLUTION
The Company is developing pathogen inactivation systems to improve the
safety of blood transfusions. These systems employ the Company's proprietary
small molecule compounds. Studies conducted by the Company have indicated the
ability of these compounds to inactivate a broad array of viral and bacterial
pathogens that may be transmitted in blood component transfusions. The Company
believes that, as a result of the mechanism of action of its proprietary
technology, its systems also have the potential to inactivate many new pathogens
before they are identified and before tests are developed to detect their
presence in the blood supply. Because the Company's systems are being designed
to inactivate rather than merely test for pathogens, the Company's systems also
have the potential to reduce the risk of transmission of pathogens that would
remain undetected by testing.
29
<PAGE> 31
The compounds synthesized by the Company act by preventing the replication
of nucleic acid (DNA or RNA); platelets, FFP and red blood cells do not contain
nuclear DNA or RNA. When the inactivation compounds are introduced into the
blood components for treatment, they cross bacterial cell walls or viral
membranes, then move into the interior of the nucleic acid structure. When
subsequently activated by an energy source, such as light, the compounds bind to
the nucleic acid of the viral or bacterial pathogen, preventing replication of
the nucleic acid. A virus, bacteria or other pathogenic cell must replicate in
order to cause infection. The Cerus compounds react in a similar manner with the
nucleic acid in leukocytes. This interaction inhibits the leukocyte activity
that is responsible for certain adverse immune and other transfusion-related
reactions. The Cerus compounds are being designed to react with nucleic acid
only during the pathogen inactivation process and not after the treated blood
component is transfused. The systems are also being designed to reduce the
amount of unbound, or residual, inactivation compound and breakdown products of
the inactivation process prior to transfusion.
The Company's pathogen inactivation systems are being designed to integrate
into current blood collection, processing and storage procedures. Furthermore,
the Company believes that the use of its pathogen inactivation products could,
over time, lead to a reduction in the use of certain costly procedures that are
currently employed in blood component transfusions, such as gamma irradiation,
CMV testing and leukocyte filtration.
CERUS STRATEGY
The Company's objective is to become the global leader in the development
and commercialization of systems to inactivate blood-borne pathogens in blood
components used for transfusions. Key elements of the Company's strategy to
achieve this objective are the following:
Establish Pathogen Inactivation Systems as the Standard of Care. Target
customers for the Company's blood component treatment systems are the
approximately 125 community blood center organizations collecting approximately
85% of blood in the United States and there is an even greater concentration
among blood centers in foreign countries. To achieve its objective of
establishing its systems as the standard of care, the Company has developed
strong relationships with prominent transfusion medicine experts in a number of
these centers as well as in the broader medical communities worldwide. The
Company intends to work with these experts to identify specific needs in blood
component treatment technology and to encourage support for the adoption of its
pathogen inactivation systems as the standard of care.
Leverage Expertise and Core Technology. The Company is using its broad
expertise in nucleic acid chemistry to develop proprietary compounds designed to
inactivate infectious pathogens in blood components. The Company will initially
seek to gain regulatory approval and commercialize its platelet pathogen
inactivation system. The Company's strategy is to build on its core technology
and experience gained in developing its platelet pathogen inactivation system to
develop its FFP and red cell pathogen inactivation systems. The Company believes
that, if regulatory approval of its products is obtained, market penetration
achieved by its platelet product will facilitate the entry into the market of
its FFP and red cell products. In addition, the Company believes that its
platform technology has potential application in a number of health and
research-related fields beyond the initial areas targeted by the Company.
Capitalize on Strategic Alliance with Baxter. The Company intends to
capitalize on the manufacturing, marketing and distribution expertise and
resources of Baxter. The Company believes that Baxter's established position as
a manufacturer and leading supplier of devices, disposables and other products
related to the transfusion of human blood products can provide the Company with
access to an established marketing, sales and distribution network. The pathogen
inactivation systems are being designed to integrate into Baxter's current
product line and into current blood collection, processing and storage
processes. In addition, the economic terms of the Baxter agreements enable the
Company to limit its operating costs and capital expenditures, and thereby
improve its operating margins.
Protect and Enhance Proprietary Position. The Company believes that the
protection of its proprietary technologies is important to its business
prospects and that its intellectual property position may create competitive
barriers to entry into the blood component treatment market. The Company
currently holds
30
<PAGE> 32
issued and allowed patents covering a number of fundamental aspects of the
Company's blood component treatment system technology. The Company intends to
continue to pursue its patent filing strategy and to vigorously defend its
intellectual property position against infringement.
PRODUCTS UNDER DEVELOPMENT
The Company is developing treatment systems to inactivate infectious
pathogens in platelets, FFP and red cells and to inactivate leukocytes to reduce
the risk of certain adverse transfusion-related reactions. The following table
identifies the Company's product development programs:
<TABLE>
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
CERUS PRODUCT
THERAPEUTIC IN INACTIVATION DEVELOPMENT
PROGRAM INDICATION DEVELOPMENT COMPOUND STATUS(1)
-----------------------------------------------------------------------------------------------------
Platelets Surgery, cancer Platelet S-59 Phases 1a, 1b and 2a
chemotherapy, Pathogen Clinical Trials completed;
transplantation, Inactivation Phase 2b Clinical Trial
bleeding disorders System anticipated to commence in
the first quarter of 1997;
Phase 3 Clinical Trials
anticipated to commence in
mid-1997
Plasma (FFP) Surgery, FFP S-59 Preclinical Development;
transplantation, Pathogen IND filing anticipated in
bleeding disorders Inactivation early 1997
System
Red Cells Surgery, Red Cell ALE S-303 Preclinical Development;
transplantation, Pathogen lead compound selected
anemia, cancer Inactivation
chemotherapy, System
trauma
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) Preclinical Development includes conducting in vitro pathogen inactivation
testing and toxicology, formulation and stability testing prior to possible
submission of an IND to the FDA and comparable submissions in Europe.
The Phase 1a Clinical Trial is a clinical trial to determine
post-transfusion platelet recovery and lifespan of treated autologous
platelets in 23 healthy human subjects.
The Phase 1b Clinical Trial is a clinical trial to determine the safety and
tolerability of treated autologous platelets in 10 healthy human subjects.
The Phase 2a Clinical Trial is a clinical trial to determine the
post-transfusion platelet recovery and lifespan of treated autologous
platelets following SRD treatment in 16 healthy human subjects from the
Phase 1a Clinical Trial.
The Phase 2b Clinical Trial is expected to be a clinical trial to determine
the post-transfusion platelet recovery and lifespan of autologous platelets
treated with the platelet pathogen inactivation system and gamma irradiation
in healthy human subjects from the Phase 2a Clinical Trial.
The Phase 1a, Phase 1b and Phase 2a Clinical Trials were conducted pursuant
to an IND submitted to the FDA. The Company anticipates that the data from
the United States clinical trials will be used to support similar regulatory
submissions in Europe.
The Phase 3 Clinical Trials are expected to be clinical trials to determine
the therapeutic efficacy of treated apheresis platelets in approximately 160
patients in the United States and of pooled random donor and apheresis
platelets in approximately 100 patients in Europe. The Company has recently
submitted a preliminary protocol for such trial to the FDA and intends to
submit in the first quarter of 1997 a protocol for such trial to the ethical
committees of institutions that would be conducting such trial in Europe.
The FDA is currently reviewing such protocol and there can be no assurance
that it will concur with its design. The Phase 3 European clinical trial is
being designed to assess the therapeutic efficacy of the platelet pathogen
inactivation system for use in treating apheresis platelets and pooled
random donor platelets. The Phase 3 United States clinical trial is being
designed to assess the therapeutic efficacy of the platelet pathogen
inactivation system for use in treating apheresis platelets, not pooled
random donor platelets. In order to obtain FDA approval of the platelet
pathogen inactivation system for use in treating pooled random donor
platelets, the Company may be required by the FDA to conduct additional
clinical studies.
31
<PAGE> 33
The Company's current estimate of the commencement of various clinical
trials and the planned submission time of regulatory filings included in this
table and elsewhere in this Prospectus are forward-looking statements that
involve risks and uncertainties. The actual clinical trial and submission dates
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including the Company's success in
completing preclinical development and the preceding phases of clinical
development and the other factors set forth under "Risk Factors" and elsewhere
in this Prospectus. See "-- Government Regulation."
PLATELET PROGRAM
Platelet Usage and Market. Platelets are cellular components of blood that
are an essential part of the clotting mechanism. Platelets facilitate blood
clotting and wound healing by adhering to damaged blood vessels and to other
platelets. Platelet transfusions are used to prevent or control bleeding in
platelet-deficient patients, such as those undergoing cancer chemotherapy or
organ transplant.
The Company estimates the production of platelets in 1995 to have been 1.8
million transfusion units in North America, 1.4 million transfusion units in
Western Europe and 800,000 transfusion units in Japan. A typical transfusion
unit consists of platelets from either a single apheresis donor or six random
whole blood donors. As indicated in the Cost Study, the estimated base cost of
an apheresis transfusion unit of platelets ranges from approximately $400 to
$640 and the base cost of a pooled random donor transfusion unit of platelets
ranges from approximately $220 to $440. A principal motivation for platelet
apheresis is to limit donor exposure from pooled, manually collected platelets.
Platelet transfusions may also require one or more additional procedures with
additional costs which are summarized in the table above relating to the Cost
Study. The Company believes that its platelet pathogen inactivation system may
reduce the need for many of these procedures and the motivation for single donor
apheresis platelets.
Platelet Pathogen Inactivation System. The Company's platelet pathogen
inactivation system applies a technology that combines light and the Company's
proprietary inactivation compound, S-59, which is a synthetic small molecule
from a class of compounds known as psoralens. S-59 was selected from over 100
psoralen derivatives synthesized by the Company, following preclinical studies
conducted by the Company to assess safety and ability to inactivate pathogens
and leukocytes while preserving platelet function.
When illuminated, S-59 undergoes a specific and irreversible chemical
reaction with nucleic acid. This chemical reaction renders the genetic material
of a broad array of pathogens incapable of replication. A virus, bacteria or
other pathogenic cell must replicate in order to cause infection. A similar
reaction with leukocyte nucleic acid inhibits the leukocyte activity that is
responsible for certain adverse immune and other transfusion-related reactions.
Most of the S-59 is converted to breakdown products during and after the
inactivation reaction. Studies conducted by the Company with preclinical models
have indicated that, following transfusion, the unbound S-59 and its unbound
breakdown products are rapidly metabolized and excreted. As a further safety
measure, the system under development employs a removal process designed to
reduce the amount of residual S-59 and breakdown products prior to transfusion
(the S-59 reduction device or "SRD").
The Company's platelet pathogen inactivation system, developed with Baxter,
has been designed for use in the blood center setting. The system consists of a
disposable processing set, containing the S-59 compound and the SRD, and an
illumination device to deliver light to trigger the inactivation reaction. The
current configuration of the platelet photochemical treatment system under
development involves the collection of the platelets, as normally performed,
followed by transfer of the platelets to a disposable treatment container with
the S-59 compound. The mixture of S-59 and platelets is then illuminated for
approximately three minutes. The final step employs the SRD, a passive
adsorption device, to reduce the amount of residual S-59 and S-59 breakdown
products. Following the SRD treatment, which takes approximately eight hours,
the platelets are transferred to the final storage container.
Development Status. Based on discussions with the FDA, the Company
believes that it will be required to provide data from human clinical studies to
demonstrate the safety of treated platelets and their therapeutic comparability
to untreated platelets, but that only data from in vitro studies, not data from
human clinical
32
<PAGE> 34
studies, will be required to demonstrate the system's efficacy in inactivating
pathogens. In light of these criteria, the Company's clinical trial program for
platelets will consist of studies that differ from the usual Phase 1, Phase 2
and Phase 3 studies. There can be no assurance, however, that the Company's
program for demonstrating safety and efficacy will ultimately be acceptable to
the FDA or that the FDA will continue to believe that this clinical plan is
appropriate. Moreover, even if the FDA considers these means of demonstrating
safety and efficacy to be acceptable in principle, there can be no assurance
that the FDA will find the data submitted sufficient to demonstrate safety and
efficacy. In particular, although the Company anticipates that the FDA will
consider in vitro data an appropriate means of demonstrating efficacy in
pathogen inactivation, there can be no assurance that the FDA will so conclude,
and any requirement to provide other than in vitro data would adversely affect
the timing and could affect the success of the Company's efforts to obtain
regulatory approval. See "-- Government Regulation."
In vitro studies conducted by the Company have indicated the efficacy of
the Company's platelet pathogen inactivation system for the inactivation of a
broad array of viral pathogens (cell-free HIV, cell-associated HIV, proviral
HIV, human CMV and model viruses for human HBV and HCV) and bacterial pathogens
(six gram-positive strains and seven gram-negative strains) up to concentrations
that the Company believes are present in contaminated platelets when the blood
is donated. There can be no assurance that contamination will never exceed such
concentrations. Similar in vitro studies have indicated inhibition of leukocyte
activity. In addition, two in vivo murine studies conducted by the Company have
indicated that use of the platelet pathogen inactivation system prevented
graft-versus-host disease in an established preclinical model. Because of the
mechanism of action of its platelet pathogen inactivation system, the Company
believes that its platelet system may also inactivate protozoans in platelets.
Psoralens other than S-59 have been shown to inactivate protozoans in cell
culture media. However, to date the Company has conducted no studies on
protozoans with S-59 in platelets, and there can be no assurance that the
Company's platelet pathogen inactivation system would effectively inactivate
protozoans.
Human clinical trials of the platelet pathogen inactivation system are
currently being pursued by the Company. Baxter is the sponsor of such trials.
Based upon the assumptions discussed above, the Company currently plans to
conduct clinical trials for the platelet pathogen inactivation system in the
phases described below.
The Company's platelet pathogen inactivation system contains three new
components not previously tested in humans: the inactivation compound S-59, a
synthetic platelet additive solution (PAS III) and the SRD. In the initial Phase
1a trial, the Company compared platelets treated with the pathogen inactivation
system (without the SRD) with non-photochemically treated platelets suspended in
the new PAS III solution and stored in the new PL 2410 plastic container
developed by Baxter, rather than with standard platelets prepared in plasma and
stored in a currently approved container.
The Phase 1a trial, completed in March 1996, consisted of a single blind,
randomized, crossover study in 23 healthy volunteer subjects divided between two
sites. The study compared the post-transfusion recovery (the proportion of
transfused platelets circulating in the first hours after transfusion) and
lifespan (the length of time the transfused platelets circulate in the
recipient's bloodstream) of a small volume (10 ml) of five-day-old treated and
untreated platelets. Under current FDA regulations, platelets may not be stored
for more than five days after collection from the donor.
In September 1996, a Phase 1b single blind, randomized, crossover study was
completed in 10 healthy subjects. This study compared the tolerability and
safety of photochemically treated platelets processed with the SRD with
untreated platelets. This second study involved the transfusion of full
therapeutic doses of platelets (300 ml) given at the maximum tolerable
transfusion rate. No adverse events attributable to transfusion with the treated
platelets were reported. Post-transfusion levels of S-59 in plasma and clearance
of S-59 were measured. This clinical data, together with the Company's
preclinical data, reflected acceptable safety margins.
In November 1996, the Company completed a Phase 2a clinical study designed
to measure the post-transfusion platelet recovery and lifespan of
photochemically treated platelets processed with the SRD and stored for five
days. This study was conducted in 16 healthy subjects from the Phase 1a study to
permit
33
<PAGE> 35
comparisons with prior results. Post-transfusion recovery and lifespan of
five-day-old standard platelets varies widely, even in healthy individuals. As a
result, there is no established regulatory or clinical standard for post-
transfusion recovery and lifespan of platelets. In the Company's Phase 2a
clinical study preliminary report, the average post-transfusion recovery of
five-day-old platelets treated with the Company's platelet pathogen inactivation
system was lower than that of the untreated five-day-old platelets. Although
this difference was statistically significant, the average post-transfusion
recovery was within the range of average recoveries reported in most published
studies funded by the National Institutes of Health (the "NIH") and Baxter, as
well as in a number of other studies reported in the scientific literature.
These published studies used currently approved processing and storage systems.
In addition, in the Company's clinical study, the average lifespan of treated
platelets was shorter than that of untreated platelets. Although this difference
was statistically significant and the average lifespan was lower than the range
of average untreated platelet lifespans reported in the published studies
referred to above, the average lifespan was within the distribution of ranges of
untreated platelet lifespans reported in such studies. The clinical
investigators reported no adverse events attributable to transfusion with the
treated platelets.
The Company plans to conduct a Phase 2b clinical trial commencing in the
first quarter of 1997 using as many of the same subjects as are available from
the Phase 2a clinical trial to assess the combined effect of treatment with the
platelet pathogen inactivation system and gamma irradiation on post-transfusion
platelet recovery and lifespan. The Company believes that in vitro studies
conducted by the Company have indicated no clinically relevant effect on in
vitro platelet function following treatment with the platelet pathogen
inactivation system combined with gamma irradiation. However, in vitro results
are not necessarily indicative of results that may be obtained in human clinical
trials, and there can be no assurance that the combination will not adversely
affect post-transfusion recovery and lifespan of platelets in human subjects.
Based on the results of the Phase 2a clinical trial, the Company has
recently submitted a protocol to the FDA for a Phase 3 randomized clinical study
of treated apheresis donor platelets in approximately 160 patients requiring
platelet transfusion. The Company intends to submit in the first quarter of 1997
a protocol to the ethical committees of institutions that would be conducting
such trial in Europe for a Phase 3 randomized clinical study of treated
apheresis and pooled random donor platelets in approximately 100 patients
requiring platelet transfusion. The Company currently anticipates that the
primary endpoint in these studies will be the increase in platelet count
post-transfusion adjusted for platelet dose and patient size (the "corrected
count increment"). The Company currently anticipates commencement of such trials
in mid-1997. The FDA is currently reviewing such protocol and there can be no
assurance that it will concur with its design. The Phase 3 European clinical
trial is being designed to assess the therapeutic efficacy of the platelet
pathogen inactivation system for use in treating apheresis platelets and pooled
random donor platelets. The Phase 3 United States clinical trial is being
designed to assess the therapeutic efficacy of the platelet pathogen
inactivation system for use in treating apheresis platelets, not pooled random
donor platelets. In order to obtain FDA approval of the platelet pathogen
inactivation system for use in treating pooled random donor platelets, the
Company may be required by the FDA to conduct additional clinical studies.
The Company believes that, in deciding whether a pathogen inactivation
system is safe and effective, the FDA is likely to take into account whether it
adversely affects the therapeutic efficacy of blood components as compared to
the therapeutic efficacy of blood components not treated with the system, and
that the FDA will weigh the system's safety and other risks against the benefits
of using the system in a blood supply that has become safer in recent years. The
Company currently does not expect to file a product approval application with
the FDA or corresponding regulatory filings in Europe for its platelet pathogen
inactivation system or for any of its other planned products prior to 1998. The
results from preclinical studies and early clinical trials conducted by the
Company may not be predictive of results obtained in later clinical trials, and
there can be no assurance that clinical trials conducted by the Company will
demonstrate sufficient safety and efficacy to obtain the requisite approvals or
that marketable products will result. The rate of completion of the Company's
clinical trials may be delayed by many factors, including slower than
anticipated patient enrollment or any other adverse event occurring during the
clinical trials. No assurance can be given that any of the Company's development
programs will be successfully completed, that any further IND will become
effective or that additional clinical trials will be allowed by the FDA or other
regulatory authorities, that clinical trials will
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commence as planned, that required United States or foreign regulatory approvals
will be obtained on a timely basis, if at all, or that any products for which
approval is obtained will be commercially successful. The Company does not
intend to make any labeling claims that the Company's pathogen inactivation
systems may inactivate any pathogens for which it does not have in vitro data
supporting such claims. The Company does not expect that its platelet pathogen
inactivation system will be able to inactivate all known and unknown infectious
pathogens.
FFP PROGRAM
FFP Usage and Market. Plasma is a noncellular component of blood that
contains coagulation factors and is essential for maintenance of intravascular
volume. Plasma is either separated from collected units of whole blood or
collected directly by apheresis. The collected plasma is then packaged and
frozen to preserve the coagulation factors. Some of the frozen plasma is made
available for fractionation, while some is designated for use as FFP. FFP is a
source of all blood clotting factors except platelets and is used to control
bleeding in patients who require clotting factors, such as patients undergoing
transplants or other extensive surgical procedures and patients with chronic
liver disease or certain genetic clotting factor deficiencies.
The Company estimates the production of FFP in 1995 to have been 3.3
million transfusion units in North America, 4.1 million transfusion units in
Western Europe and 2.0 million transfusion units in Japan. In the Cost Study,
the estimated base price of a transfusion unit of FFP in the United States
ranges from approximately $35 to $73. A typical therapeutic transfusion consists
of four transfusion units of FFP.
FFP Pathogen Inactivation System. The Company's pathogen inactivation
system for FFP will use the same S-59 psoralen compound and is expected to use
an SRD and illumination device similar to those being used by the Company in its
clinical trials for its platelet pathogen inactivation system. The parameters of
the system are expected to be very similar to the platelet treatment system,
with minor changes in the illumination time and treatment volume. The FFP
pathogen inactivation system under development involves the collection of plasma
by either manual or automated procedures. Plasma is then transferred to a
disposable container with S-59. The mixture of S-59 and plasma is then
illuminated for approximately three minutes. The final step employs an SRD to
reduce residual S-59 and breakdown products. Following the SRD treatment, the
plasma is transferred to the final storage container and is frozen in accordance
with standard protocols.
Development Status. The Company believes that the requirements to obtain
regulatory approval of the FFP pathogen inactivation system will be
substantially similar to those applicable to the platelet pathogen inactivation
system.
In vitro studies conducted by the Company to date have indicated the
efficacy of the FFP pathogen inactivation system for the inactivation in FFP of
a broad array of viral pathogens. Because of the mechanism of action of its FFP
pathogen inactivation system, the Company believes that its system may also
inactivate protozoans and inhibit leukocyte activity. Although bacterial
contamination in FFP is typically not as significant a problem as in platelets,
the Company believes that the FFP pathogen inactivation system will inactivate
bacteria at the levels typically found in FFP. To date, the Company has
conducted no studies on protozoans or to detect inhibition of leukocyte activity
in FFP and only limited studies on bacteria in FFP, and there can be no
assurance that the Company's FFP pathogen inactivation system would effectively
inactivate protozoans, leukocytes or bacteria. The Company has assessed the
impact of S-59 photochemical treatment on the function of plasma proteins.
Plasma derived from whole blood or apheresis must be frozen within eight hours
of collection to meet the standard as "fresh frozen plasma." After freezing,
plasma may be stored for up to one year, thawed once, and must be transfused
within four hours of thawing. The Company has measured the in vitro coagulation
function activity of various clotting factors in FFP after photochemical
treatment, SRD treatment, freezing and thawing. These factors are Fibrinogen
(Factor I), Prothrombin (Factor II), Factor V, Factor VII, Hemophilia A Factor
(Factor VIII), Hemophilia B Factor (Factor IX), Factor X, Factor XI and von
Willebrand's Factor. The Company believes that in vitro data from these studies
indicate that treated FFP maintained adequate levels of coagulation function for
FFP. These in vitro results are not necessarily indicative of coagulation
function that may be obtained in vivo, and there can be no assurance that the
FDA or foreign regulatory authorities would view such levels of coagulation
function as adequate.
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The Company believes that the Phase 1 clinical trials for the FFP pathogen
inactivation system will be similar to the clinical protocol for the platelet
pathogen inactivation system. The Company intends to submit an IND to the FDA to
begin Phase 1 clinical trials on the FFP pathogen inactivation system in early
1997. There can be no assurance that the Company will submit such application as
planned or complete clinical trials as planned or that any such trials, if
commenced, will be successful.
RED CELL PROGRAM
Red Cell Usage and Market. Red blood cells are essential components of
blood that carry oxygen to tissues and carbon dioxide to the lungs. Red cells
may be transfused as a single treatment in surgical and trauma patients with
active bleeding or on a repeated basis in patients with acquired anemia or
genetic disorders, such as sickle cell anemia, or in connection with
chemotherapy.
The Company estimates the production of red blood cells in 1995 to have
been 13.7 million transfusion units in North America, 14.3 million transfusion
units in Western Europe and 3.0 million transfusion units in Japan. The Cost
Study indicated that the estimated base cost of a transfusion unit of red blood
cells in the United States ranges from approximately $66 to $110. A typical red
blood cell transfusion consists of two or more red blood cell transfusion units.
As shown in the Cost Study, a red blood cell transfusion may also require one or
more additional procedures with additional costs ranging from $10 to $210 for
each procedure. The procedures are used to address problems presented by
leukocytes and to conduct pathogen diagnostic testing beyond the standard
testing.
Red Cell ALE Treatment System. The Company is developing a system for
pathogen inactivation in red blood cells using a compound that binds to nucleic
acid in a manner similar to that of S-59-based systems, but does not require
light. The Company's method for inactivating pathogens in red blood cells is
based on a proprietary ALE compound, S-303, a small molecule synthesized by the
Company. The selection of S-303 was based on preclinical studies of over 100 ALE
compounds synthesized by the Company to assess safety, stability and ability to
inactivate pathogens and leukocytes, while preserving red cell survival and
function.
The red cell ALE treatment system, which is being co-developed with Baxter,
is being designed for implementation in blood center settings with minimal
disruption of current processing practices. The system is being designed for use
with both manual and automated red blood cell collection systems.
Development Status. In vitro studies by the Company have indicated the
efficacy of the ALE process for the inactivation of a broad array of viral and
bacterial pathogens. Because of the mechanism of action of its red cell ALE
treatment system, the Company believes that its system may also inactivate
protozoans and inhibit leukocyte function. However, the Company has conducted no
studies on protozoans or to detect inhibition of leukocyte activity in red
cells, and there can be no assurance that the Company's red cell system would be
effective to inactivate protozoans or leukocytes. The Company is currently
conducting additional tests on S-303 and expects to commence good laboratory
practice (GLP) toxicology and pathogen inactivation validation studies on its
red cell pathogen inactivation system by mid-1997. The estimated date for the
commencement of these additional studies is a forward-looking statement that
involves risks and uncertainties. There can be no assurance that these studies
will not be delayed as a result of certain factors set forth under "Risk
Factors" and elsewhere in this Prospectus.
FUTURE PRODUCT DEVELOPMENT
The Company believes that the technology it has developed for treatment of
platelets, FFP and red cells may have application in treating other blood
products, including plasma fractions, such as Factor VIII and Factor IX clotting
factors, and recombinant equivalents of plasma derivatives. The Company also
believes that the compounds and processes it has developed for inactivation of
pathogens and leukocytes may have other medical applications in which reactions
with nucleic acid may serve to prevent or control the activities of cells or
microorganisms.
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ALLIANCE WITH BAXTER
In December 1993, the Company entered into an agreement with Baxter to
develop, manufacture and market worldwide a system for pathogen inactivation of
platelets for transfusion (the "Platelet Agreement"). Under the Platelet
Agreement, Baxter purchased 125,000 shares of Series C Preferred Stock for an
aggregate purchase price of $1.0 million and paid the Company up-front license
fees and milestone and development payments totaling $5.2 million. The agreement
provides for Baxter and the Company to share equally development expenses and
for Baxter to make additional payments to the Company subject to the achievement
of certain milestones. To date, Baxter has paid the Company $1.75 million based
on the achievement of preclinical and clinical milestones, in addition to
payments made by Baxter to cover its share of development expenses.
In July 1995, the Company entered into interim research funding agreements
with Baxter providing for Baxter and the Company to share research and
development expenses in 1995 for the Company's pathogen inactivation systems for
FFP and red blood cells.
In April 1996, the Company entered into an agreement with Baxter to
develop, manufacture and market systems for pathogen inactivation of FFP and red
blood cells (the "Red Cell/Plasma Agreement"). Under the Red Cell/Plasma
Agreement and a related Series E Preferred Stock Purchase Agreement dated April
1, 1996, Baxter purchased 190,477 shares of Series E Preferred Stock on April 1,
1996 at an aggregate purchase price of $3.0 million and 190,476 shares of Series
E Preferred Stock on July 1, 1996 at an aggregate purchase price of $3.0
million. Except as set forth below, the agreement provides for Baxter and the
Company to share equally expenses for development of the FFP and red cell
pathogen inactivation systems, subject to certain potential adjustments,
commencing on January 1, 1997. The sharing by Baxter of development expenses is
conditioned upon receipt of regulatory approval to begin Phase 3 clinical trials
of the platelet pathogen inactivation system.
In January 1997, the Company and Baxter amended the Platelet Agreement to
provide that the Company would receive an additional 2.2% of shared revenue from
the sale of the platelet pathogen inactivation systems in return for payment by
the Company to Baxter of $5.5 million in 1997.
The Red Cell/Plasma Agreement calls for specific equity investments by
Baxter to be made at 120% of the market price at the time of each investment
subject to the achievement of certain milestones as follows: (i) $5 million,
upon the later of January 10, 1997 and the approval to commence a Phase 3 study
in the United States or Europe in the program under the Platelet Agreement, (ii)
either $5 million, upon the later of January 10, 1998 and the achievement of
both (a) the mutual determination by the Company and Baxter that there is
sufficient data to conclude that the Phase 3 platelet trials are likely to
satisfy specified criteria (the "Interim Platelet Determination") and (b) the
filing of an IND with the FDA to begin a Phase 1 study under the red cell
program or comparable filing in Europe under such program, or separate equity
investments of $2 million, upon the later of January 10, 1998 and the Interim
Platelet Determination and $3 million, upon the later of January 10, 1998 and
the approval of an IND by the FDA under the red cell program or comparable
approval in Europe under such program, and (iii) $5 million, upon the later of
January 10, 1999 and the achievement of both (a) the approval by the FDA to
commence a Phase 2 study in the United States or comparable approval in Europe
under the red cell project and the (b) approval of a New Drug Application
("NDA") by the FDA under the platelet program or comparable approval in Europe
under such program.
Pursuant to the Red Cell/Plasma Agreement, Baxter has agreed that it will
not at any time, nor will it permit any of its affiliates, to own capital stock
of the Company having 20.1% or more of the outstanding voting power of the
Company. Such restrictions on stock purchases will not apply in the event a
third party makes a tender offer for a majority of the outstanding voting
securities of the Company or if the Board of Directors of the Company determines
to liquidate or sell to a third party substantially all of the assets or a
majority of the voting securities of the Company or to approve a merger or
consolidation in which the Company's stockholders will not own a majority of the
voting securities of the surviving entity.
Baxter has the right to purchase a number of shares up to 19.9% of any
equity securities to be sold in this offering and the Baxter Private Placement.
Baxter has committed to purchase the maximum number of shares
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of Common Stock permitted by its agreements with the Company at the initial
public offering price, less underwriting discounts and commissions, of $6.9
million (assuming a total price to public of $30 million), subject to certain
conditions, including the closing of this offering and the satisfaction of any
waiting period requirements under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the regulations promulgated thereunder. The sale of
such shares will not be registered in this offering. Pursuant to an Amended and
Restated Investors' Rights Agreement dated as of April 1, 1996, the Company has
granted to Baxter certain registration rights.
Subject to regulatory approval of a pathogen inactivation system developed
under either agreement, Baxter has the exclusive right and responsibility to
market the system (including both the inactivation system disposables and any
related instruments) worldwide. The Company is obligated to supply the
inactivation compound for the system, with Baxter supplying the remaining
components. Under the Platelet Agreement, as amended, the Company is to receive
between 26.8% and 30.7% of revenues from sales of inactivation system
disposables after deducting from such revenues the amount by which Baxter's and
the Company's cost of goods for the inactivation system disposables exceeds
certain dollar amounts specified in the agreement (the "Premium"). The
percentage of revenue to be received by the Company will be determined on the
basis of the market price of the system; in no event, however, will the amount
to be received be less than $8.50, plus 2.2% of the Premium, nor more than
$20.00, plus 2.2% of the Premium per system. Under the Red Cell/Plasma
Agreement, the Company and Baxter are to share equally in gross profits from
sales of inactivation system disposables, after deducting from such gross
profits a specified percentage allocation to be retained by the marketing party
for marketing and administrative expenses. However, the revenue sharing under
this agreement is subject to adjustment upon the occurrence of certain events,
including any adjustments in the relative sharing by the parties of development
expenses. Under the Red Cell/Plasma Agreement, the Company and Baxter are also
to receive their respective costs of goods for compounds and components supplied
for inactivation system disposables. Under each agreement, Baxter will retain
revenues from the sales of any related instruments, such as the illumination
devices used to activate S-59. If Baxter does not market a system in a country
following its regulatory approval, ceases to market a system or fails to satisfy
certain market penetration criteria in the case of the platelet system, the
Company will have the non-exclusive right under the Platelet Agreement and the
exclusive right under the Red Cell/Plasma Agreement to market such system in
that country.
Baxter has certain discretion in decisions concerning the development and
marketing of pathogen inactivation systems. There can be no assurance that
Baxter will not elect to pursue alternative technologies or product strategies
or that its corporate interests and plans will remain consistent with those of
the Company. The Company is aware that Baxter is developing an alternative
pathogen inactivation system for FFP, based on a compound known as methylene
blue. Other companies are currently marketing methylene blue-based pathogen
inactivation systems for FFP in Europe. If the Company's agreements with Baxter
were terminated or if Baxter's product development efforts were unsuccessful,
the Company may need to obtain additional funding from other sources and would
be required to devote additional resources to the development of its products,
delaying the development of its products. Any such delay would have a material
adverse effect on the Company's business, financial condition and results of
operations. There can also be no assurance that disputes will not arise in the
future with respect to the Baxter agreements. Possible disagreements between
Baxter and the Company could lead to delays in the research, development or
commercialization of certain planned products or could require or result in
time-consuming and expensive litigation or arbitration and would have a material
adverse effect on the Company's business, financial condition and results of
operations.
In the development agreements, Baxter agreed to certain limited
restrictions on its ability to independently develop and market products that
compete with the products under the agreements. There can be no assurance that
these provisions will prevent Baxter from developing or marketing competing
products. The development agreements contain restrictions on the Company's
ability to develop and market pathogen inactivation systems for blood components
outside the Baxter agreements. The Company is entitled, however, to enter into
development and licensing agreements with third parties for pathogen
inactivation technology for plasma derivatives and recombinant equivalents of
plasma derivatives. Such development and licensing agreements are free of any
rights of Baxter, except that the Company must offer Baxter the right to license
such technology on terms no less favorable than the terms offered to other
plasma derivative manufacturers.
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The development programs under either of the Baxter agreements may be
terminated by Baxter or the Company on 90 days' notice. Neither party may give
such notice under the FFP program or the red cell program before January 1, 1998
if program test results are successful. If either party so terminates as to a
program, the other party gains exclusive development and marketing rights to the
program, and the terminating party's sharing in program revenues is
significantly reduced.
The agreements with Baxter expressly provide that they do not and shall not
be deemed to create any relationship or a joint venture or partnership. See
"-- Manufacturing and Supply," "-- Marketing, Sales and Distribution" and
"-- Competition."
RESEARCH GRANTS
The Company has three ongoing federal (R01) grants which are administered
by the NIH relating to the Company's research and development of its pathogen
inactivation systems. Two of the grants were awarded directly to the Company and
are five-year awards totaling approximately $1.9 million and $1.3 million,
respectively. The third grant was transferred from the University of California
at San Francisco to Cerus at the time Dr. Corash, the grant's principal
investigator, began his employment relationship with the Company. The balance of
the grant transferred to the Company was approximately $579,000. These three
federal grants must be renewed annually by submitting an Application for
Continuing Support to the NIH. The Company retains all rights to technology
funded by these grants, subject to certain rights of the federal government if
the Company fails to commercialize the technology in a timely manner or if
action is necessary to alleviate health or safety needs not addressed by the
Company, to meet requirements for public use specified by federal regulations or
in the event the Company were to breach certain agreements. The United States
Government also has a non-exclusive, non-transferable, irrevocable, paid-up
license to practice or have practiced for or on behalf of the Government any
subject invention throughout the world.
MANUFACTURING AND SUPPLY
The Company has in the past utilized, and intends to continue to utilize,
third parties to manufacture and supply the inactivation compounds for its
systems and Baxter for other system components for use in clinical trials and
for the potential commercialization of its products in development. The Company
has no experience in manufacturing products for commercial purposes and does not
have any manufacturing facilities. Consequently, the Company is dependent on
contract manufacturers for the production of compounds and on Baxter for other
system components for development and commercial purposes.
The Company is responsible for developing and delivering its proprietary
compounds for effecting pathogen inactivation to Baxter for incorporation into
the final system configuration. This arrangement applies both to the current
supply for clinical trials and, if applicable regulatory approvals are obtained,
the future commercial supply. In order to provide the inactivation compounds for
its platelet and FFP pathogen inactivation systems, the Company has contracted
with two manufacturing facilities for large-scale synthesis of S-59 and
currently has a stock of compound sufficient to support the anticipated
remaining clinical trials planned for the platelet pathogen inactivation system.
Only one of the manufacturers, however, is currently performing the complete
synthesis of S-59. If such manufacturer is unable to continue to produce S-59 in
commercial quantities, the Company could experience material delays and
shortfalls in compound supply while the alternative manufacturer validated the
complete process and increased its production capabilities or while the Company
identified another manufacturer and such manufacturer prepared for production.
There can be no assurance that the existing manufacturers or any new
manufacturers will be able to provide commercial quantities of S-59 needed for
the Company's pathogen inactivation systems in the future.
The red cell pathogen inactivation system will require the manufacture of
S-303, which the Company has produced in only limited quantities for its
research and preclinical development requirements. The Company has contracted
with a manufacturing facility for the supply of S-303 for preclinical and
clinical studies. No assurance can be given that this or any new manufacturer
will be able to produce S-303 on a commercial scale or that the Company will be
able to enter into arrangements for the commercial-scale manufacture of S-303 on
reasonable terms, if at all.
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Under the terms of the Company's development agreements with Baxter for all
described pathogen inactivation systems, Baxter is responsible for manufacturing
the disposable units, such as blood storage containers and related tubing, as
well as any device associated with the inactivation processes. If the Company's
agreements with Baxter were terminated or if Baxter otherwise failed to deliver
an adequate supply of components, the Company would be required to identify
other third-party component manufacturers. There can be no assurance that the
Company would be able to identify such manufacturers on a timely basis or enter
into contracts with such manufacturers on reasonable terms, if at all. Any delay
in the availability of devices or disposables from Baxter could adversely affect
the timely submission of products for regulatory approval or the market
introduction and subsequent sales of such products and would have a material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, the inclusion of components manufactured by others could
require the Company to seek new approvals from government regulatory
authorities, which could result in delays in product delivery. There can be no
assurance that the Company would receive any such required regulatory approvals.
Any such delay would have a material adverse effect on the Company's business,
financial condition and results of operations.
There can be no assurance that the Company will be able to contract for the
manufacturing of products and compounds for its pathogen inactivation systems on
reasonable terms, if at all. In the event that the Company is unable to obtain
or retain third-party manufacturing, it will not be able to commercialize its
products as planned. The Company's dependence upon third parties, including
Baxter, for the manufacture of critical portions of its pathogen inactivation
systems may adversely affect the Company's operating margins and its ability to
develop, deliver and sell products on a timely and competitive basis. Failure of
any third-party manufacturer to deliver the required quantities of products on a
timely basis and at commercially reasonable prices could materially adversely
affect the Company's business, financial condition and results of operations. In
the event the Company undertakes to establish its own commercial manufacturing
capabilities, it will require substantial additional funds, manufacturing
facilities, equipment and personnel.
The Company purchases certain key components of its compounds from a
limited number of suppliers. While the Company believes that there are
alternative sources of supply for such components, establishing additional or
replacement suppliers for any of the components in the Company's compounds, if
required, may not be accomplished quickly and could involve significant
additional costs. Any failure by the Company to obtain any of the components
used to manufacture the Company's compounds from alternative suppliers, if
required, could limit the Company's ability to manufacture its compounds and
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "-- Alliance with Baxter."
MARKETING, SALES AND DISTRIBUTION
The market for blood component treatment systems consists of the blood
centers and hospitals that collect, store and distribute blood and blood
components. In the United States, the American Red Cross collects and
distributes approximately 42% of the nation's supply of blood and blood
components. Other major blood centers include the New York Blood Center and
United Blood Services, each of which distributes approximately 6% of the
nation's supply of blood and blood components. In Western Europe and Japan,
various national blood transfusion services or Red Cross organizations collect,
store and distribute virtually all of their respective nations' blood and blood
components supply. Hospital-affiliated blood banks also store and dispense blood
and blood components but generally do not collect significant quantities of
blood. The Company believes that, if the Company's products receive appropriate
regulatory approvals, the relatively concentrated nature of the market may
facilitate the Company's ability to penetrate the market.
The Company believes that market acceptance of the Company's pathogen
inactivation systems will depend, in part, on the Company's ability to provide
acceptable evidence of the safety, efficacy and cost-effectiveness of its
products, as well as the ability of blood centers to obtain FDA approval and
adequate reimbursement for such products. The Company believes that market
acceptance of its pathogen inactivation systems will also depend upon the extent
to which physicians, patients and health care payors perceive that the benefits
of using blood components treated with the Company's systems justify the
additional costs and processing requirements in a blood supply that has become
safer in recent years. While the Company believes that its pathogen inactivation
systems are able to inactivate pathogens up to concentrations that the Company
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believes are present in contaminated blood components when the blood is donated,
there can be no assurance that contamination will never exceed such levels. The
Company does not expect that its planned products will be able to inactivate all
known and unknown infectious pathogens, and there can be no assurance that the
inability to inactivate certain pathogens will not affect the market acceptance
of its products. There can be no assurance that the Company's pathogen
inactivation systems will gain any significant degree of market acceptance among
blood centers, physicians, patients and health care payors, even if clinical
trials demonstrate safety and efficacy and necessary regulatory approvals and
health care reimbursement approvals are obtained.
If appropriate regulatory approvals are received, Baxter will be
responsible for the marketing, sales and distribution of the Company's pathogen
inactivation systems for blood components worldwide. The Company does not
currently maintain, nor does it intend to develop, its own marketing and sales
organization but instead expects to continue to rely on Baxter to market and
sell its pathogen inactivation systems. There can be no assurance that the
Company will be able to maintain its relationship with Baxter or that such
marketing arrangements will result in payments to the Company. Revenues to be
received by the Company through any marketing and sales arrangement with Baxter
will be dependent on Baxter's efforts, and there can be no assurance that the
Company will benefit from Baxter's present or future market presence or that
such efforts will otherwise be successful. If the Company's agreements with
Baxter were terminated or if Baxter's marketing efforts were unsuccessful, the
Company's business, financial condition and results of operations would be
materially adversely affected. See "-- Alliance with Baxter."
COMPETITION
The Company expects to encounter competition in the sale of products it may
develop. If regulatory approvals are received, the Company's products may
compete with other approaches to blood safety currently in use, as well as with
future products developed by biotechnology and pharmaceutical companies,
hospital supply companies, national and regional blood centers, and certain
governmental organizations and agencies. Many companies and organizations that
may be competitors or potential competitors have substantially greater financial
and other resources than the Company and may have greater experience in
preclinical testing, human clinical trials and other regulatory approval
procedures. The Company's ability to compete successfully will depend, in part,
on its ability to develop proprietary products, develop and maintain products
that reach the market first, are technologically superior to and/or are of lower
cost than other products on the market, attract and retain scientific personnel,
obtain patent or other proprietary protection for its products and technologies,
obtain required regulatory approvals, and manufacture, market and sell any
product that it develops. In addition, other technologies or products may be
developed that have an entirely different approach or means of accomplishing the
intended purposes of the Company's products, or that might render the Company's
technology and products uncompetitive or obsolete. Furthermore, there can be no
assurance that the Company's competitors will not obtain patent protection or
other intellectual property rights that would limit the Company's ability to use
the Company's technology or commercialize products that may be developed.
Several companies are developing technologies which are, or in the future
may be, the basis for products that will directly compete with or reduce the
market for the Company's pathogen inactivation systems. A number of companies
are specifically focusing on alternative strategies for pathogen inactivation or
removal in various blood components. Although no commercial processes are
currently available to eliminate or inactivate pathogens in platelets and red
cells, a number of pathogen inactivation methods are used commercially in Europe
for FFP, including treatment with solvent-detergent or methylene blue. In
addition, because the solvent-detergent process uses hundreds of units of plasma
that have been combined into large pools, there is increased risk of
transmission of pathogens not inactivated by the process, such as parvovirus
B19. The Blood Products Advisory Committee, an advisory panel to the FDA, has
recently unanimously recommended that solvent-detergent be approved for use in
treating FFP. Although recommendations of advisory committees are not binding,
unanimous recommendations are generally followed by the FDA. If approved by the
FDA, there can be no assurance that the treatment of FFP by solvent-detergent
will not become a widespread practice prior to any commercialization of the
Company's FFP pathogen inactivation system. Other groups are developing
synthetic blood product substitutes or products to stimulate the growth of
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platelets. If any of these technologies is successfully developed, it could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company believes that the primary competitive factors in the market for
pathogen inactivation systems will include the breadth and effectiveness of
pathogen inactivation processes, ease of use, the scope and enforceability of
patent or other proprietary rights, product price, product supply and marketing
and sales capability. In addition, the length of time required for products to
be developed and to receive regulatory and, in some cases, reimbursement
approval is an important competitive factor. The Company believes it competes
favorably with respect to these factors, although there can be no assurance that
it will be able to continue to do so. The biopharmaceutical field is
characterized by rapid and significant technological changes. Accordingly, the
Company's success will depend in part on its ability to respond quickly to
medical and technological changes through the development and introduction of
new products. Product development involves a high degree of risk, and there can
be no assurance that the Company's product development efforts will result in
any commercially successful products.
The Company relies on Baxter to support preclinical evaluation and clinical
development of its pathogen inactivation systems, as well as to manufacture and
market the systems. Under the terms of the Red Cell/Plasma Agreement, Baxter has
reserved the right to market competing products not within the field of psoralen
or ALE inactivation. Baxter is conducting several independent product
development efforts in blood collection and processing that may improve blood
quality and safety. The Company is aware that Baxter is developing an
alternative pathogen inactivation system for FFP, based on a compound known as
methylene blue. The development and commercialization of the Company's pathogen
inactivation systems could be materially adversely affected by competition with
Baxter or by Baxter's election to pursue alternative strategies or technologies
in lieu of those of the Company. See "-- Alliance with Baxter."
PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company's success depends in part on its ability to obtain patents, to
protect trade secrets, to operate without infringing upon the proprietary rights
of others and to prevent others from infringing on the proprietary rights of the
Company. The Company's policy is to seek to protect its proprietary position by,
among other methods, filing United States and foreign patent applications
related to its proprietary technology, inventions and improvements that are
important to the development of its business. As of December 31, 1996, the
Company owned 30 issued or allowed United States patents and 13 issued or
allowed foreign patents. The Company's patents expire at various dates between
2003 and 2015. In addition, the Company has 32 pending United States patent
applications and has filed 11 corresponding patent applications under the Patent
Cooperation Treaty, three of which are currently pending in Europe, Japan,
Australia and Canada. Proprietary rights relating to the Company's planned and
potential products will be protected from unauthorized use by third parties only
to the extent that they are covered by valid and enforceable patents or are
effectively maintained as trade secrets. There can be no assurance that any
patents owned by, or licensed to, the Company will afford protection against
competitors or that any pending patent applications now or hereafter filed by,
or licensed, to the Company will result in patents being issued. In addition,
the laws of certain foreign countries do not protect the Company's intellectual
property rights to the same extent as do the laws of the United States.
The patent positions of biopharmaceutical companies involve complex legal
and factual questions and, therefore, their enforceability cannot be predicted
with certainty. There can be no assurance that any of the Company's patents or
patent applications, if issued, will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide proprietary
protection or competitive advantages to the Company against competitors with
similar technology. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate any technology developed
by the Company. Because of the extensive time required for development, testing
and regulatory review of a potential product, it is possible that, before any of
the Company's products can be commercialized, any related patent may expire or
remain in existence for only a short period following commercialization, thus
reducing any advantage of the patent, which could adversely affect the Company's
ability to protect future product development and, consequently, its operating
results and financial position.
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Because patent applications in the United States are maintained in secrecy
until patents issue and since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, the Company cannot be
certain that it was the first to make the inventions covered by each of its
issued or pending patent applications or that it was the first to file for
protection of inventions set forth in such patent applications. There can be no
assurance that the Company's planned or potential products will not be covered
by third-party patents or other intellectual property rights, in which case
continued development and marketing of such products would require a license
under such patents or other intellectual property rights. There can be no
assurance that such required licenses will be available to the Company on
acceptable terms, if at all. If the Company does not obtain such licenses, it
could encounter delays in product introductions while it attempts to design
around such patents, or could find that the development, manufacture or sale of
products requiring such licenses is foreclosed. Litigation may be necessary to
defend against or assert such claims of infringement, to enforce patents issued
to the Company, to protect trade secrets or know-how owned by the Company or to
determine the scope and validity of the proprietary rights of others. In
addition, interference proceedings declared by the United States Patent and
Trademark Office may be necessary to determine the priority of inventions with
respect to patent applications of the Company. Litigation or interference
proceedings could result in substantial costs to and diversion of effort by the
Company, and could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
these efforts by the Company would be successful.
The Company may rely, in certain circumstances, on trade secrets to protect
its technology. However, trade secrets are difficult to protect. The Company
seeks to protect its proprietary technology and processes, in part, by
confidentiality agreements with its employees and certain contractors. There can
be no assurance that these agreements will not be breached, that the Company
will have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently discovered by competitors.
To the extent that the Company's employees or its consultants or contractors use
intellectual property owned by others in their work for the Company, disputes
may also arise as to the rights in related or resulting know-how and inventions.
In August 1996, the Company received correspondence from Circadian
Technologies, Inc., an Australian entity, alleging that unspecified trade
secrets and know-how jointly owned by Circadian and the Auckland Division Cancer
Society of New Zealand were, without the consent of Circadian, used in the
development by the Cancer Society and the Company of unspecified compounds for
the Company's red cell program. Such claims do not relate to the Company's
platelet or FFP programs. In subsequent correspondence, Circadian has indicated
that it is seeking compensation in the form of royalties or a lump sum payment.
Based on its investigation of the matter to date, the Company does not believe
that the claims are meritorious. Any future litigation involving these
allegations, however, would be subject to inherent uncertainties, especially in
cases where complex technical issues are decided by a lay jury. There can be no
assurance that, if a lawsuit were commenced, it would not be decided against the
Company, which could have a material adverse effect upon the Company's business,
financial condition and results of operations.
GOVERNMENT REGULATION
The Company and its products are comprehensively regulated in the United
States by the FDA and, in some instances, by state and local governments, and by
comparable governmental authorities in other countries. The FDA regulates drugs,
medical devices and biologics under the Federal Food, Drug and Cosmetic Act and
other laws, including, in the case of biologics, the Public Health Service Act.
These laws and implementing regulations govern, among other things, the
development, testing, manufacturing, record keeping, storage, labeling,
advertising, promotion and premarket clearance or approval of products subject
to regulation.
The Company believes its pathogen inactivation systems will be regulated by
the FDA as drugs. It is also possible, however, that the FDA will decide to
regulate the pathogen inactivation systems as "biologics," as "combination
products," including drugs or biologics and one or more medical devices, or as
drugs or biologics with one or more medical devices (i.e., the blood bags and
light source) requiring separate approval or clearance. Whether the FDA
regulates the pathogen inactivation systems as drugs or as one or more of the
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other alternatives, it is likely that the FDA's Center for Biologics Evaluation
and Review will be principally responsible for regulating the pathogen
inactivation systems.
Before a new drug may be marketed in the United States, the FDA must
approve an NDA for the product. Before a biologic may be marketed in the United
States, the FDA must approve a Biologics License Application ("BLA") or a
Product License Application ("PLA") for the product and an Establishment License
Application ("ELA") for the facility at which the product is manufactured.
Before a medical device may be marketed in the United States, the FDA must clear
a pre-market notification (a "510(k)") or approve a pre-market approval
application ("PMA") for the product. Before a combination product may be
marketed in the United States, it must have an approved NDA, BLA (or PLA/ELA) or
PMA, depending on which statutory authority the FDA elects to use.
Despite the multiplicity of statutory and regulatory possibilities, the
steps required before approval are essentially the same whether the product is
ultimately regulated as a drug, a biologic, a medical device, a combination
product or some combination thereof. The steps required before a drug, biologic
or medical device may be approved for marketing in the United States pursuant to
an NDA, BLA (or PLA/ELA) or PMA, respectively, generally include (i) preclinical
laboratory and animal tests, (ii) submission to the FDA of an IND (for drugs or
biologics) or an investigational device exemption ("IDE") (for medical devices)
for human clinical testing, which must become effective before human clinical
trials may begin, (iii) appropriate tests to show the product's safety, (iv)
adequate and well-controlled human clinical trials to establish the product's
efficacy for its intended indications, (v) submission to the FDA of an NDA, BLA
(or PLA/ELA) or PMA, as appropriate and (vi) FDA review of the NDA, BLA (or
PLA/ELA) or PMA in order to determine, among other things, whether the product
is safe and effective for its intended uses. In addition, the FDA inspects the
facilities at which the product is manufactured and will not approve the product
unless compliance with cGMP requirements is satisfactory. The steps required
before a medical device may be cleared for marketing in the United States
pursuant to a 510(k) are generally the same, except that instead of conducting
tests to demonstrate safety and efficacy, data, including clinical data if
necessary, must be obtained to show that the product is substantially equivalent
to a legally marketed device, and the FDA must make a determination of
substantial equivalence rather than a determination that the product is safe and
effective.
The Company believes that, in deciding whether a pathogen inactivation
system is safe and effective, the FDA is likely to take into account whether it
adversely affects the therapeutic efficacy of blood components as compared to
the therapeutic efficacy of blood components not treated with the system, and
that the FDA will weigh the system's safety and other risks against the benefits
of using the system in a blood supply that has become safer in recent years.
Based on discussions with the FDA, the Company believes that it will be
required to provide data from human clinical studies to demonstrate the safety
of treated platelets and their therapeutic comparability to untreated platelets,
but that only data from in vitro studies, not data from human clinical studies,
will be required to demonstrate the system's efficacy in inactivating pathogens.
In light of these criteria, the Company's clinical trial program for platelets
will consist of studies that differ from the usual Phase 1, Phase 2 and Phase 3
studies. Specifically, its Phase 1 studies were designed to demonstrate in
healthy subjects that use of the system does not alter the in vivo function
(therapeutic efficacy) of the platelets treated with the system and to evaluate
in healthy subjects the safety and tolerability of platelets treated with the
system. Phase 2 studies will consist of a reevaluation in the healthy subjects
used in the Phase 1 study of the in vivo function of platelets treated with the
system. Phase 3 studies are expected to consist of a study of the therapeutic
efficacy of platelets treated with the system in a larger group of patients who
require transfusions. The Company believes that the Phase 1 clinical trials for
the FFP pathogen inactivation system will be similar to the clinical protocols
for the platelet pathogen inactivation system. To date, The Company has not had
specific discussions with the FDA regarding the FFP or red cell clinical
development programs.
There can be no assurance, however, that these means of demonstrating
safety and efficacy will ultimately be acceptable to the FDA or that the FDA
will continue to believe that this clinical plan is appropriate. Moreover, even
if the FDA considers these means of demonstrating safety and efficacy to be
acceptable in principle, there can be no assurance that the FDA will find the
data submitted sufficient to demonstrate safety
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<PAGE> 46
and efficacy. In particular, although the Company anticipates that the FDA will
consider in vitro data an appropriate means of demonstrating efficacy in
pathogen inactivation, there can be no assurance that the FDA will so conclude,
and any requirement to provide other than in vitro data would adversely affect
the timing and could affect the success of the Company's efforts to obtain
regulatory approval.
Even if regulatory approval or clearance is granted, it could include
significant limitations on the indicated uses for which a product could be
marketed. For example, the Company does not believe that it will be able to make
any labeling claims that the Company's pathogen inactivation systems may
inactivate any pathogens for which it does not have in vitro data supporting
such claims. The testing and approval/clearance process requires substantial
time, effort and financial resources, and is generally lengthy, expensive and
uncertain. The approval process is affected by a number of factors, including
the availability of alternative treatments and the risks and benefits
demonstrated in clinical trials. Additional animal studies or clinical trials
may be requested during the FDA review period and may delay marketing approval.
After FDA approval for the initial indications, further clinical trials may be
necessary to gain approval for the use of the product for additional
indications. The FDA may also require post-marketing testing to monitor for
adverse effects, which can involve significant expense. Later discovery of
previously unknown problems with a product may result in restrictions on the
product, including withdrawal of the product from the market. In addition, the
policies of the FDA may change, and additional regulations may be promulgated
which could prevent or delay regulatory approval of the Company's planned
products. There can be no assurance that any approval or clearance will be
granted on a timely basis, if at all. Any failure to obtain or delay in
obtaining such approvals or clearances, and any significant limitation on their
indicated uses, could have a material adverse effect on the Company's business,
financial condition and results of operations.
A drug, biologic or medical device, its manufacturer, and the holder of the
NDA, BLA (or PLA/ELA), PMA or 510(k) for the product are subject to
comprehensive regulatory oversight, both before and after approval or clearance
is obtained. Violations of regulatory requirements at any stage, including
during the preclinical and clinical testing process, during the
approval/clearance process or after the product is approved/cleared for
marketing, could result in various adverse consequences, including the FDA's
requiring that a clinical trial be suspended or halted, the FDA's delay in
approving/clearing or refusing to approve/clear a product, withdrawal of an
approved/cleared product from the market and the imposition of criminal
penalties. For example, the holder of an NDA, BLA (or PLA/ELA), PMA or 510(k) is
required to report certain adverse reactions to the FDA, and must comply with
certain requirements concerning advertising and promotional labeling for the
product. Also, quality control and manufacturing procedures must continue to
conform to cGMP regulations after approval or clearance, and the FDA
periodically inspects manufacturing facilities to assess compliance with cGMP.
Accordingly, manufacturers must continue to expend time, monies and efforts on
regulatory compliance, including cGMP compliance. In addition, new government
requirements may be established that could delay or prevent regulatory approval
or clearance of the Company's products under development or otherwise alter the
applicable law. There can be no assurance that the FDA will determine that the
facilities and manufacturing procedures of Baxter or any other third-party
manufacturer of the Company's planned products will conform to cGMP
requirements.
In addition to the regulatory requirements applicable to the Company and
its products, there are also regulatory requirements applicable to the Company's
prospective customers, which are primarily entities that ship blood and blood
products in interstate commerce. Such entities are regulated by the FDA pursuant
to the Food, Drug, and Cosmetic Act and the Public Health Service Act and
implementing regulations. Blood centers and others that ship blood and blood
products interstate will likely be required to obtain approved license
supplements from the FDA before shipping products processed with the Company's
pathogen inactivation systems. This requirement and/or FDA delays in approving
such supplements may deter some blood centers from using the Company's products,
and blood centers that do submit supplements may face disapproval or delays in
approval that could provide further disincentives to use of the systems. The
regulatory impact on potential customers could have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition, transfusion units of random donor platelets, which currently
represent approximately one-half of the platelets transfused in the United
States, certain platelets pooled from six different donors. The Phase 3
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European clinical trial is being designed to assess the therapeutic efficacy of
the platelet pathogen inactivation system for use in treating apheresis
platelets and pooled random donor platelets. The Phase 3 United States clinical
trial is being designed to assess the therapeutic efficacy of the platelet
pathogen inactivation system for use in treating apheresis platelets, not pooled
random donor platelets. In order to obtain FDA approval of the platelet pathogen
inactivation system for use in treating pooled random donor platelets, the
Company may be required by the FDA to conduct additional clinical studies.
In addition, because of the risk of bacterial growth, current FDA rules
require that pooled platelets be transfused within four hours of pooling and, as
a result, most pooling occurs at hospitals. However, the Company's platelet
pathogen inactivation system is being designed to be used at blood centers, not
at hospitals, and requires a processing time of approximately eight hours.
Therefore, in order for the Company's platelet pathogen inactivation system to
be effectively implemented and accepted at blood centers as planned, the
FDA-imposed limit on the time between pooling and transfusion would need to be
lengthened or eliminated for blood products treated with the Company's systems,
which are being designed to inactivate bacteria that would otherwise contaminate
pooled platelets. The Company intends to work with the FDA during the
approval/clearance process to obtain the necessary changes in these limitations.
There can be no assurance, however, that the FDA will change this requirement
and, if such a change is not made, the Company's business, financial condition
and results of operations would be materially adversely affected. In addition,
under current FDA regulations, platelets may not be stored for more than five
days after collection from the donor.
The Company is developing a European investigational plan based on the
platelet treatment systems being categorized as a class 2b device under European
Union regulatory authorities. However, there can be no assurance that this
approach will be accepted by European authorities. The European Union has
promulgated rules that require that medical devices receive by mid-1998 the
right to affix the CE mark, an international symbol of adherence to quality
assurance standards and compliance with applicable European medical device
directives. Failure to receive CE mark certification will prohibit the Company
from selling its products in the European Union.
The Company is subject to federal, state and local laws, rules, regulations
and policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of certain materials, biological
specimens and wastes. There can be no assurance that the Company will not be
required to incur significant costs to comply with environmental and health and
safety regulations in the future. The Company's research and development
involves the controlled use of hazardous materials, including certain hazardous
chemicals and radioactive materials. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. In the event
of such an accident, the Company could be held liable for any damages that
result and any such liability could exceed the resources of the Company.
HEALTH CARE REIMBURSEMENT AND REFORM
The future revenues and profitability of biopharmaceutical and related
companies as well as the availability of capital to such companies may be
affected by the continuing efforts of the United States and foreign governments
and third-party payors to contain or reduce costs of health care through various
means. In the United States, given recent federal and state government
initiatives directed at lowering the total cost of health care, it is likely
that the U.S. Congress and state legislatures will continue to focus on health
care reform and the cost of pharmaceuticals and on the reform of the Medicare
and Medicaid systems. While the Company cannot predict whether any such
legislative or regulatory proposals will be adopted, the announcement or
adoption of such proposals could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of the products and related treatment are obtained from governmental
authorities, private health insurers and other organizations, such as HMOs.
Third-party payors are increasingly challenging the prices charged for medical
products and services. The trend toward managed
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health care in the United States and other countries and the concurrent growth
of organizations such as HMOs, which could control or significantly influence
the purchase of health care services and products, as well as legislative
proposals to reform health care or reduce government insurance programs, may all
result in lower prices for the Company's products. The cost containment measures
that health care payors and providers are instituting and the effect of any
health care reform could materially adversely affect the Company's ability to
operate profitably.
FACILITIES
The Company leases approximately 17,400 square feet for its main facility
and approximately 9,900 square feet for an additional facility, both of which
contain laboratory and office space, in Concord, California. The lease of the
main facility extends through 1999 with two five-year renewal options and
provides for an option to expand into an approximately 9,200 square foot
adjacent space. The lease of the additional facility extends through 1998, with
renewal options for up to eight years. The Company also has a short-term lease
for approximately 1,380 square feet at a facility located near its main facility
in Concord. The Company believes that its facilities will be adequate to meet
its needs for the foreseeable future.
EMPLOYEES
As of December 31, 1996, the Company had 70 employees, 56 of whom were
engaged in research and development and 14 in finance and other administration.
The Company also had consulting arrangements with seven individuals. No employee
of the Company is covered by collective bargaining agreements, and the Company
believes that its relationship with its employees is good.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board is composed of experts in the
fields of transfusion medicine, blood collection, blood component preparation,
virology, chemistry, biochemistry, organic synthesis, hematology and related
fields. The Scientific Advisory Board members work with the Company both as a
group and, less formally and more frequently, on an individual basis. The
Scientific Advisory Board members review the Company's programs for research,
assist in planning its future research directions and provide advice concerning
ongoing product development programs.
The following are members of the Company's Scientific Advisory Board:
Harvey Alter, M.D., is the Chief of the Infectious Diseases Section and
Assistant Director of Research in the Department of Transfusion Medicine
Clinical Center at the National Institutes of Health. His area of expertise is
in the epidemiology of transfusion-associated viral hepatitis.
Harry Greenberg, M.D., is a Professor of Medicine and Chief of
Gastroenterology at Stanford University. His expertise is in infectious viral
diseases.
Jeffrey McCullough, M.D., is a Professor of Laboratory Medicine and
Director of the Blood Bank at the University of Minnesota Hospitals and the
editor-in-chief of the medical journal Transfusion.
Scott Murphy, M.D., is the Chief Medical Officer of the American Red Cross
Blood Services, Penn -- Jersey Region. He is also a Professor of Medicine and
director of the Blood Bank at Thomas Jefferson College of Medicine.
Sherrill Slichter, M.D., is the Director for the Division of Research and
Education at Puget Sound Blood Center, as well as a Professor of Medicine,
Hematology/Medicine, University of Washington.
Robert Stern, M.D., is an Associate Professor of Dermatology at the Harvard
Medical School and Beth Israel Hospital.
All members of the Scientific Advisory Board are employed elsewhere and may
have commitments to and/or consulting contracts with other organizations,
including potential competitors, that may limit their availability to the
Company. Each member has entered into a Nondisclosure Agreement with the
Company, which requires the maintenance of all proprietary information in
complete confidence.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The directors, executive officers and other key employees of the Company
and their ages as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- ---- -------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Stephen T. Isaacs..................... 47 President, Chief Executive Officer and Director
David S. Clayton...................... 53 Vice President, Finance and Chief Financial Officer
Laurence M. Corash.................... 52 Vice President, Medical Affairs
John E. Hearst........................ 61 Vice President, New Science Opportunities and Director
B. J. Cassin(1),(2)................... 62 Chairman of the Board
Peter H. McNerney(1).................. 45 Director
Dale A. Smith......................... 64 Director
Henry E. Stickney(2).................. 63 Director
KEY EMPLOYEES
George D. Cimino...................... 45 Director of Product Development
David N. Cook......................... 38 Director of Red Cell Development
William M. Greenman................... 30 Director of Business Development
Lily Lin.............................. 51 Director of Platelet Development
Tim E. McCullough..................... 47 Director of Preclinical Safety
Lori L. Roll.......................... 37 Controller and Secretary
Ira Wallis............................ 47 Director of Regulatory Affairs
Gary P. Wiesehahn..................... 47 Director of Plasma Development
Kathryn P. Wilke...................... 30 Intellectual Property Counsel
Susan Wollowitz....................... 43 Director of Organic Chemistry
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
STEPHEN T. ISAACS founded the Company in September 1991 and has served as
President, Chief Executive Officer and a member of the Board of Directors since
that time. Mr. Isaacs was previously President and Chief Executive Officer of
HRI, a research and development company from September 1984 to December 1996.
From 1975 to 1986, Mr. Isaacs held a faculty research position at the University
of California at Berkeley.
DAVID S. CLAYTON has been Chief Financial Officer of the Company since May
1996 and Vice President, Finance of the Company since July 1996. From 1992 to
May 1996, Mr. Clayton was a financial consultant to various companies, including
the Company. From 1989 through May 1992, Mr. Clayton was the Executive Vice
President of Trans Ocean Ltd., a company engaged in leasing of international
maritime shipping containers.
LAURENCE M. CORASH, M.D., a co-founder of the Company, has been Vice
President, Medical Affairs of the Company since July 1996. From July 1994 until
he assumed his current position, Dr. Corash was Director of Medical Affairs. Dr.
Corash was a consultant to the Company from 1991 to July 1994. Dr. Corash has
been a Professor of Laboratory Medicine at the University of California, San
Francisco since July 1985 and Chief of the Hematology Laboratory for the Medical
Center at the University of California, San Francisco since January 1982. Dr.
Corash has served as a consultant to the FDA Advisory Panel for Hematology
Devices since 1990.
JOHN E. HEARST, PH.D., D.SC., a co-founder of the Company, was elected Vice
President, New Science Opportunities in July 1996. From January 1996 until July
1996, Dr. Hearst served as Director, New Science Opportunities. He has served as
a member of the Board of Directors of the Company since January 1992. Dr. Hearst
has been a Professor of Chemistry at the University of California at Berkeley
since 1972. In 1984, Dr. Hearst co-founded HRI.
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B. J. CASSIN has served as Chairman of the Board of the Company since
December 1992. Mr. Cassin has been a private venture capitalist since 1979.
Previously, Mr. Cassin co-founded Xidex Corporation, a manufacturer of data
storage media, in 1969. Mr. Cassin is currently a director of six private
companies.
PETER H. MCNERNEY has served as a member of the Board of Directors of the
Company since December 1992. Mr. McNerney has been a General Partner of Coral
Ventures, a venture capital investment firm, since 1992. Prior to that, Mr.
McNerney was a Managing Partner of Kensington Group, a management consulting
firm, from 1989 to 1992. Mr. McNerney serves as a director for Aksys, Ltd. and
Optical Sensors, Inc.
DALE A. SMITH has served as a member of the Board of Directors of the
Company since March 1994. From 1978 to July 1995, Mr. Smith was Group Vice
President of Baxter Healthcare Corporation. Mr. Smith serves as a director of
Vical, Inc.
HENRY E. STICKNEY has served as a member of the Board of Directors of the
Company since January 1992. In 1988, Mr. Stickney founded Health IQ Corporation
(formerly, Reimbursement Dynamics, Inc.), a medical consulting company
specializing in health care economics and reimbursement issues, and has served
as its chief executive officer since that time.
GEORGE D. CIMINO, PH.D., a co-founder of the Company, has been Director of
Product Development for the Company since January 1992. Prior to that time, Dr.
Cimino was Director of Research for HRI from 1985 to January 1992.
DAVID COOK, PH.D., has been Director of Red Cell Development for the
Company since January 1994. Prior to that time, Dr. Cook was a senior scientist
in the Platelet Program for the Company from February 1993 to January 1994. From
January 1990 to February 1993, Dr. Cook was a Postdoctoral Associate in the
Department of Chemistry at the University of California, Berkeley.
WILLIAM M. GREENMAN has been Director of Business Development for the
Company since September 1995. From May 1993 to August 1995, Mr. Greenman was a
manager in the Corporate Development Group of the Biotech Group at Baxter
International. From March 1991 to May 1993, Mr. Greenman held various marketing
and corporate development positions in the Biotech Group at Baxter
International.
LILY LIN, PH.D., a co-founder of the Company, has been Director of Platelet
Development for the Company since April 1996. Prior to that time, Dr. Lin was
Director of Biological Research for the Company from January 1992 to April 1996.
From 1989 to February 1994, Dr. Lin was a senior scientist for HRI.
TIM E. MCCULLOUGH, PH.D., has been Director of Preclinical Safety for the
Company since January 1996. From 1988 to January 1996, Dr. McCullough was
Department Head/Director of Toxicology of Roche Bioscience (formerly, Syntex
Discovery Research).
LORI L. ROLL has been the Controller of the Company since October 1992 and
Secretary of the Company since February 1994. From December 1991 to October
1992, Ms. Roll was a financial services consultant for a variety of small
private companies.
IRA WALLIS, PH.D., has been Director of Regulatory Affairs for the Company
since June 1996. Dr. Wallis was Associate Director, Regulatory Affairs for
Genentech, Inc. from February 1993 to June 1996 and Manager, Regulatory Affairs
for Genentech, Inc. from February 1990 to February 1993.
GARY WIESEHAHN, PH.D., has been Director of Plasma Development for the
Company since January 1996. From February 1994 to January 1996, Dr. Wiesehahn
was a senior scientist for the Company. From December 1989 to January 1994, Dr.
Wiesehahn was Vice President of Research of Acrogen, Inc.
KATHRYN P. WILKE, ESQ., has been Intellectual Property Counsel for the
Company since February 1992. From September 1990 to August 1991, Ms. Wilke was a
law clerk for Limbach & Limbach, a law firm.
SUSAN WOLLOWITZ, PH.D., has been Director of Organic Chemistry for the
Company since June 1992. From 1984 to June 1992, Dr. Wollowitz was Senior
Research Chemist/Project Leader for DowElanco (formerly Dow Chemical
Agricultural Products).
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BOARD COMMITTEES
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee, currently comprised of Messrs. Cassin and Stickney, reviews
the internal accounting procedures of the Company and consults with and reviews
the services provided by the Company's independent auditors. The Compensation
Committee, currently comprised of Messrs. Cassin and McNerney, reviews and
recommends to the Board the compensation and benefits of all officers of the
Company and reviews general policy relating to compensation and benefits of the
Company. The Compensation Committee also administers the issuance of stock
options and other awards under the Company's 1996 Equity Incentive Plan and
Employee Stock Purchase Plan.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation for their services
as members of the Board of Directors, although they are reimbursed for certain
expenses in connection with attendance at Board and Committee meetings. In
September 1995, the Company granted to Mr. Smith an option to purchase 14,700
shares of Common Stock at an exercise price of $0.71 per share. In May 1996, the
Company granted to Messrs. Cassin, Isaacs, Hearst and Stickney options to
purchase 14,700, 36,750, 7,350 and 14,700 shares of Common Stock, respectively,
at an exercise price of $2.72 per share. All of these options were granted under
the Company's 1992 Stock Option Plan and are fully exercisable. The unvested
shares issued or issuable upon exercise are subject to repurchase by the
Company, with such repurchase right lapsing with respect to 1/48 of the shares
per month from the date of the grant.
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to or earned by the
Company's Chief Executive Officer and the other executive officers whose
combined salary and bonus for 1996 was in excess of $100,000 (collectively, the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(2) AWARDS
----------------------------- ----------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) COMPENSATION(3) OPTIONS(#)(4)
------------------------------------- -------- --------------- ----------------------
<S> <C> <C> <C>
Stephen T. Isaacs.................... $230,833 $ 2,489 36,750
President and Chief Executive
Officer
David S. Clayton..................... $160,200(5) -- 67,179
Vice President, Finance and Chief
Financial Officer
Laurence M. Corash................... $179,083 $ 1,758 29,400
Vice President, Medical Affairs
John Hearst.......................... $138,958 $ 1,561 7,350
Vice President, New Science
Opportunities
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits received by the Named
Executive Officers which are available generally to all salaried employees
of the Company and certain perquisites and other personal benefits received
by the Named Executive Officers, which do not exceed the lesser of $50,000
or 10% of any such officer's salary and bonus disclosed in this table.
(2) Excludes bonus amounts for fiscal 1996, which have not yet been determined.
(3) Reflects interest forgiven on loans by the Company to the Named Executive
Officers and reimbursement for the amount of taxes payable thereon.
(4) The Company has not issued any SARs.
(5) Includes amounts paid as consulting fees prior to commencement of full-time
employment in May 1996.
50
<PAGE> 52
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information for each grant of stock
options made during the fiscal year ended December 31, 1996, to each of the
Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------
PERCENTAGE OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES IN EXERCISE DEEMED VALUE TERM(5)
OPTIONS FISCAL YEAR PRICE EXPIRATION FOR DATE OF -----------------------------
NAME GRANTED(#)(1) (%)(2) ($/SH)(3) DATE GRANT(4) 0%($) 5%($) 10%($)
- --------------------- ------------- ------------- --------- ---------- ------------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen T. Isaacs
President and Chief
Executive
Officer............ 36,750 9.0 $2.72 05/17/06 $ 4.08 $49,980 $144,277 $288,940
David S. Clayton
Vice President,
Finance and Chief
Financial
Officer............ 67,179 16.5 $0.71 03/05/06 $ 1.36 $43,666 $101,125 $189,272
Laurence M. Corash
Vice President,
Medical Affairs.... 29,400 7.2 $2.72 05/17/06 $ 4.08 $39,984 $115,422 $231,152
John E. Hearst
Vice President, New
Science
Opportunities...... 7,350 1.8 $2.72 05/17/06 $ 4.08 $ 9,996 $ 28,855 $ 57,788
</TABLE>
- ---------------
(1) Options generally become exercisable at a rate of 1/48th per month from the
date of grant. Options may be exercised immediately pursuant to early
exercise provisions contained in option agreements. Any shares issued
pursuant to such early exercise provisions are subject to repurchase upon
termination of employment. Such repurchase option terminates at the rate of
1/48th per month. The options expire 10 years from the date of grant or
earlier upon termination of employment.
(2) Based on options to purchase an aggregate of 407,383 shares of Common Stock
granted to employees and directors of, and consultants to, the Company
during fiscal 1996, including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors.
(4) The deemed value for the date of grant was determined after the date of
grant solely for financial accounting purposes.
(5) The potential realizable value is calculated based on the term of the option
at its date of grant (10 years). It is calculated based on the deemed value
at the date of grant and assumes that the deemed value appreciates from the
date of grant at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on the
last day of its term for the appreciated stock price. The 0%, 5% and 10%
assumed rates of appreciation are derived from the rules of the Commission
and do not represent the Company's estimate or projection of future Common
Stock price.
51
<PAGE> 53
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND DECEMBER 31, 1996 OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options during
the fiscal year ended December 31, 1996 and the number and value of securities
underlying unexercised options held by the Named Executive Officers at December
31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- -------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Stephen T. Isaacs
President and Chief Executive 0 0 36,750/0 $274,890/0
Officer......................
David S. Clayton
Vice President, Finance and 67,179 $ 43,666 0/0 0/0
Chief Financial Officer......
Laurence M. Corash
Vice President, Medical 0 0 29,400/0 $219,912/0
Affairs......................
John E. Hearst
Vice President, New Science 14,700 $ 19,992 7,350/0 $54,978/0
Opportunities................
</TABLE>
- ---------------
(1) Value realized and value of unexercised in-the-money options are based on
the per share deemed values at the exercise date and at year end,
respectively, determined after the date of grant solely for financial
accounting purposes, less the exercise price payable for such shares.
EQUITY INCENTIVE PLANS
1996 Equity Incentive Plan. The Company's 1996 Equity Incentive Plan (the
"Incentive Plan") was adopted by the Board of Directors in July 1996 as an
amendment and restatement of the Company's 1992 Stock Option Plan (the "1992
Plan"). There are currently 1,470,000 shares of Common Stock authorized for
issuance under the Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options under
the Internal Revenue Code of 1986, as amended (the "Code"), and stock
appreciation rights appurtenant thereto to employees (including officers and
employee-directors) and nonstatutory stock options, stock appreciation rights,
restricted stock purchase awards and stock bonuses to employees, directors and
consultants. The Incentive Plan is administered by the Board of Directors, or a
committee appointed by the Board, which determines recipients and types of
awards to be granted, including the exercise price, number of shares subject to
the award and the exercisability thereof.
The terms of stock options granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, provided that the exercise price
of an incentive stock option cannot be less than 100% of the fair market value
of the Common Stock on the date of the option grant and the exercise price of a
nonstatutory stock option cannot be less than 85% of the fair market value of
the Common Stock on the date of the option grant. Options granted under the
Incentive Plan vest at the rate specified in the option agreement. No stock
option may be transferred by the optionee other than by will or the laws of
descent and distribution or, in certain limited instances, pursuant to a
qualified domestic relations order, provided that the Board of Directors may
grant a nonstatutory stock option that is transferable, and provided further
that an optionee may designate a beneficiary who may exercise the option
following the optionee's death. An optionee whose relationship with the Company
or any related corporation ceases for any reason (other than by death or
disability) may exercise options in the three-month period following such
cessation (unless such options terminate or expire sooner or later by their
terms). Options may be exercised for up to 12 months after an optionee's
relationship with the Company and its
52
<PAGE> 54
affiliates ceases due to disability or for up to 18 months following an
optionee's death (unless such options expire sooner or later by their terms).
Shares subject to stock awards that have expired or otherwise terminated without
having been exercised in full (or vested in the case of restricted stock awards)
will again become available for the grant of awards under the Incentive Plan.
Shares subject to exercised stock appreciation rights will not again become
available for the grant of new awards.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant and the term of the option
does not exceed five years from the date of grant. The aggregate fair market
value, determined at the time of grant, of the shares of Common Stock with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year (under all such plans of the Company and
its affiliates) may not exceed $100,000. No person may receive options or stock
appreciation rights covering more than 250,000 shares of Common Stock in any
calendar year. The Board of Directors has the authority to reprice outstanding
options and stock appreciation rights and to offer optionees the opportunity to
replace outstanding options and stock appreciation rights with new options and
stock appreciation rights for the same or a different number of shares.
Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a vesting schedule and at a price determined by the Board of Directors.
Restricted stock purchases must be at a price equal to at least 85% of the
stock's fair market value on the award date, but stock bonuses may be awarded in
consideration of past services without a purchase payment. Rights under a stock
bonus or restricted stock bonus agreement may not be transferred other than by
will, the laws of descent and distribution or, in certain limited instances,
pursuant to a qualified domestic relations order while the stock awarded
pursuant to such an agreement remains subject to the agreement.
Upon certain changes in control of the Company, all outstanding awards
under the Incentive Plan will either be assumed, continued or substituted by the
surviving entity. If the surviving entity determines not to assume, continue or
substitute such awards, with respect to persons then performing services as
employees, directors or consultants, the time during which such awards may be
exercised will be accelerated and the awards terminated if not exercised prior
to such change in control.
As of December 31, 1996, 515,550 shares of Common Stock had been issued
upon the exercise of options granted under the Incentive Plan, options to
purchase 407,383 shares of Common Stock at a weighted average exercise price of
$2.52 were outstanding and 547,067 shares remained available for future grant
under the Incentive Plan. The Incentive Plan will terminate in July 2006 unless
sooner terminated by the Board of Directors. As of December 31, 1996, no stock
bonuses, restricted stock or stock appreciation rights had been granted under
the Incentive Plan.
Employee Stock Purchase Plan. In July 1996, the Company's Board of
Directors approved the Employee Stock Purchase Plan (the "Purchase Plan")
covering an aggregate of 220,500 shares of Common Stock. The Purchase Plan is
intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Code. Under the Purchase Plan, the Board of Directors may
authorize participation by eligible employees, including officers, in periodic
offerings following the adoption of the Purchase Plan. The offering period for
any offering may be no more than 27 months.
Employees are eligible to participate if they are employed by the Company
or an affiliate of the Company designated by the Board of Directors and, unless
otherwise determined by the Board of Directors and set forth in the applicable
offering, are employed at least 20 hours per week and five months per year.
Employees who participate in an offering can have up to 15% of their earnings
withheld pursuant to the Purchase Plan and applied, on specified dates
determined by the Board of Directors, to the purchase of shares of Common Stock.
The price of Common Stock purchased under the Purchase Plan will be equal to 85%
of the lower of the fair market value of the Common Stock on the commencement
date of each offering period or the relevant purchase date. Employees may end
their participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
53
<PAGE> 55
In the event of certain changes of control, the Company and the Board of
Directors has discretion to provide that each right to purchase Common Stock
will be assumed or an equivalent right substituted by the successor corporation,
or the Board may shorten the offering period and provide for all sums collected
by payroll deductions to be applied to purchase stock immediately prior to the
change in control. The Purchase Plan will terminate at the Board's direction.
401(k) Plan. In July 1992, the Company established a 401(k) Plan covering
certain of the Company's employees. Pursuant to the 401(k) Plan, eligible
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit ($9,500 in 1996) and have the amount of such
reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does not
require, additional contributions by the Company on behalf of the participants.
To date, the Company has made no contributions to the 401(k) Plan other than to
cover administrative and certain other expenses of the 401(k) Plan and
participants. The 401(k) Plan is intended to qualify under Section 401 of the
Code, so that contributions by employees or by the Company to the 401(k) Plan,
and income earned on the 401(k) Plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that contributions by the Company,
if any, will be deductible by the Company when made. The trustee under the
401(k) Plan, at the direction of each participant, invests the 401(k) Plan
employee salary deferrals in selected investment options.
54
<PAGE> 56
CERTAIN TRANSACTIONS
Since January 1, 1994, the Company has sold, in a series of private
financings, 1,091,593 shares of its Series C Preferred Stock at a price of $8.00
per share, 529,084 shares of its Series D Preferred Stock at a price of $10.50
per share and 380,953 shares of its Series E Preferred Stock at a price of
$15.75 per share. The Company sold these securities pursuant to preferred stock
purchase agreements and an investors' rights agreement on substantially similar
terms (except for terms relating to date and price), under which the Company
made standard representations, warranties and covenants, and which provided the
purchasers thereunder with registration rights, information rights and rights of
first refusal, among other provisions standard in venture capital financings.
Each share of Preferred Stock will convert into 1.47 shares of Common Stock upon
the closing of this offering. The purchasers of the Preferred Stock included,
among others, the following holders of 5% or more of the Company's Common Stock
and, directors:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
PURCHASED
----------------------------------
INVESTOR SERIES C SERIES D SERIES E
---------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Coral Partners II, a limited partnership...... 247,926 95,238 --
Coral Partners IV, a limited partnership...... 125,000 190,476 --
Baxter Healthcare Corporation................. 125,000 -- 380,953
B. J. Cassin.................................. 65,797 4,760 --
Peter H. McNerney............................. 1,250 952 --
Henry E. Stickney............................. 10,690 952 --
</TABLE>
In May 1993, pursuant to a Note and Warrant Purchase Agreement, the Company
issued convertible promissory notes in an aggregate principal amount of $800,000
and sold warrants to purchase shares of Series B Preferred Stock for an
aggregate purchase price of $800. The notes accrued interest at the rate of 8%
per annum and were convertible into shares of Series C Preferred Stock. In March
1994, the outstanding notes and accrued interest, representing an aggregate of
$853,304, were converted into an aggregate of 106,663 shares of the Company's
Series C Preferred Stock. In May 1994, warrants were issued to purchase 15,798
shares of Series B Preferred Stock at an exercise price of $5.065 per share. The
purchasers of the notes and warrants included, among others, the following
holders of 5% or more of the Company's Common Stock and directors: (i) Coral
Partners II, which purchased a convertible promissory note in the principal
amount of $208,220 and a warrant to purchase 4,111 shares of Series B Preferred
Stock, (ii) Mr. Cassin, who purchased a convertible promissory note in the
principal amount of $108,274 and a warrant to purchase 2,138 shares of Series B
Preferred Stock, and (iii) Mr. Stickney, who purchased a convertible promissory
note in the principal amount of $21,655 and a warrant to purchase 428 shares of
Series B Preferred Stock.
In August 1993, pursuant to a Note and Warrant Purchase Agreement, the
Company issued convertible promissory notes in an aggregate principal amount of
$1,194,698 and sold warrants to purchase shares of Series C Preferred Stock for
an aggregate purchase price of $1,200. The notes accrued interest at the rate of
8% per annum and were convertible into shares of Series C Preferred Stock. In
March 1994, the outstanding notes and accrued interest, representing an
aggregate of $1,250,440, were converted into an aggregate of 156,305 shares of
the Company's Series C Preferred Stock. In May 1994, warrants to purchase 17,570
shares of Series C Preferred Stock at an exercise price of $6.80 per share were
issued. The purchasers of the notes and warrants included, among others, the
following holders of 5% or more of the Company's Common Stock and directors: (i)
Coral Partners II, which purchased a convertible promissory note in the
principal amount of $249,658 and a warrant to purchase 3,671 shares of Series C
Preferred Stock, (ii) Mr. Cassin, who purchased a convertible promissory note in
the principal amount of $129,822 and a warrant to purchase 1,909 shares of
Series C Preferred Stock, and (iii) Mr. Stickney, who purchased a convertible
promissory note in the principal amount of $25,965 and a warrant to purchase 382
shares of Series C Preferred Stock.
In June 1995, the Company entered into a Transfer Agreement with HRI
Research, Inc. ("HRI"). Until December 1996, Mr. Isaacs was President, Chief
Financial Officer and a director of HRI and Mr. Hearst is a director and
Secretary of HRI. Pursuant to the Transfer Agreement, HRI transferred to the
Company all of its right, title and interest to HRI's technology, which
generally relates to photochemistry and photoreactive compounds, trademarks and
trade names in consideration of $52,610. In addition, the Company purchased
55
<PAGE> 57
certain assets related to technology for $44,930 from HRI. From December 1991 to
the date of the purchase, the Company had rented such equipment for an aggregate
price of $52,460.
INDEMNIFICATION AND LIMITATION OF DIRECTOR AND OFFICER LIABILITY
In July 1996, the Board authorized the Company to enter into indemnity
agreements with each of the Company's directors and executive officers. The form
of indemnity agreement, which is subject to stockholder approval, provides that
the Company will indemnify against any and all expenses of the director or
executive officer who incurred such expenses because of his or her status as a
director or executive officer, to the fullest extent permitted by the Company's
Bylaws and Delaware law. In addition, the Company's Bylaws provide that the
Company shall indemnify its directors and executive officers to the fullest
extent permitted by Delaware law, subject to certain limitations, and may also
secure insurance, to the fullest extent permitted by Delaware law, on behalf of
any director, officer, employee or agent against any expense, liability or loss
arising out of his or her actions in such capacity.
The Company's Restated Certificate contains certain provisions relating to
the limitation of liability of directors. The Company's Restated Certificate
provides that a director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payment of dividends or unlawful stock
repurchases or redemptions, or (iv) for any transaction from which the director
derived an improper benefit. If the Delaware General Corporation Law is amended
to authorize corporate action further eliminating or limiting the personal
liability of a director, then the liability of a Company director shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. The provision in the Restated Certificate does
not eliminate the duty of care and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
56
<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1996, assuming the
conversion of each share of Preferred Stock into 1.47 shares of Common Stock and
the Warrant Exercise, and as adjusted to reflect the sale of Common Stock
offered by the Company hereby and the Baxter Private Placement for (i) each
stockholder who is known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each Named Executive Officer of the Company, (iii) each
director of the Company, and (iv) all executive officers and directors of the
Company as a group. Except as otherwise indicated in the notes to this table,
the Company believes, based on information furnished by such owners, that the
persons named in the table have voting and investment power with respect to all
the shares of Common Stock, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
-----------------------
SHARES PRIOR TO AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING(2)
- ----------------------------------------------------- --------------------- -------- --------
<S> <C> <C> <C>
Coral Partners II, a limited partnership(3).......... 1,316,178 20.6% 14.8%
60 South Sixth Street
Suite 3510
Minneapolis, MN 55402
Baxter Healthcare Corporation(4)..................... 1,240,628 18.0% 14.0%
One Baxter Parkway
Deerfield, IL 60015
Stephen T. Isaacs(5)................................. 346,912 5.4% 3.9%
Cerus Corporation
2525 Stanwell Drive, Suite 300
Concord, CA 94520
David S. Clayton(6).................................. 67,179 1.1% *
Laurence M. Corash(7)................................ 260,925 4.1% 2.9%
John E. Hearst(8).................................... 246,224 3.9% 2.8%
B. J. Cassin(9)...................................... 321,413 5.0% 3.6%
Cerus Corporation
2525 Stanwell Drive, Suite 300
Concord, CA 94520
Peter H. McNerney(10)................................ 1,319,414 20.7% 14.9%
Coral Group, Inc.
60 South Sixth Street
Suite 3510
Minneapolis, MN 55402
Dale A. Smith(11).................................... 14,700 * *
Henry E. Stickney(12)................................ 82,702 1.3% *
All executive officers and directors as a group
(8 persons)(13).................................... 2,659,469 40.8% 29.5%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Percentage of beneficial ownership is based on 6,389,000
shares of Common Stock outstanding as of December 31, 1996 and 8,885,878
shares of Common Stock outstanding after the closing of this offering and
the Baxter Private Placement.
(2) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to an aggregate of 300,000 shares of Common Stock from the Company.
(3) Includes 463,749 shares of Common Stock held by Coral Partners IV.
(4) Includes 496,878 shares of Common Stock which Baxter has the right to
acquire within 60 days of December 31, 1996 in the Baxter Private
Placement, subject to the closing of this offering.
57
<PAGE> 59
(5) Includes 7,350 shares held by Stephen T. Isaacs and Kathryn Macbride as
trustees for the Alexandra Isaacs Irrevocable Trust and 7,350 shares held
by Stephen T. Isaacs and Kathryn Macbride as trustees for the Megan Isaacs
Irrevocable Trust. Includes 36,750 shares issuable upon the exercise of
stock options exercisable within 60 days of December 31, 1996, subject to
repurchase of unvested shares.
(6) Includes 35,525 shares which are subject to a right of repurchase in favor
of the Company that expires ratably through May 1999.
(7) Includes 29,400 shares issuable upon the exercise of stock options
exercisable within 60 days of December 31, 1996, subject to repurchase of
unvested shares.
(8) Includes 14,700 shares held by David Paul Hearst Irrevocable Trust and
14,700 shares held by Leslie Jean Hearst Irrevocable Trust. Also includes
7,350 shares of Common Stock issuable upon the exercise of stock options
exercisable within 60 days of December 31, 1996, subject to repurchase of
unvested shares.
(9) Includes 255,924 shares held by Brendan Joseph Cassin and Isabel B. Cassin,
Trustees of the Cassin Family Trust, 36,750 shares held by Cassin Family
Partners, a California Limited Partnership, and 8,091 shares held by Mr.
Cassin as conservator for Robert J. Cassin. Includes 14,700 shares issuable
upon the exercise of stock options exercisable within 60 days of December
31, 1996, subject to repurchase of unvested shares.
(10) Includes 852,429 shares of Common Stock held by Coral Partners II and
463,749 shares of Common Stock held by Coral Partners IV. Mr. McNerney is a
General Partner of Coral Partners II and Coral Partners IV and disclaims
beneficial ownership of the shares held by such entities except to the
extent of his proportionate partnership interest therein.
(11) Includes 14,700 shares issuable upon the exercise of stock options
exercisable within 60 days of December 31, 1996, subject to repurchase of
unvested shares.
(12) Includes 18,302 shares of Common Stock held by Mr. Stickney as Trustee of
the Stickney Family Trust. Also includes 29,400 shares issuable upon the
exercise of stock options exercisable within 60 days of December 31, 1996,
subject to repurchase of unvested shares.
(13) Includes information contained in the notes above, as applicable.
58
<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, par value $.001 per
share, and 5,000,000 shares of Preferred Stock, par value $.001 per share.
COMMON STOCK
As of December 31, 1996, there were 6,341,050 shares of Common Stock
(including Preferred Stock that will be converted into Common Stock upon the
closing of this offering) outstanding held of record by 217 stockholders.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of the Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights and no right to convert their
Common Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon the closing of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Pursuant to the Company's Restated Certificate, the Board of Directors has
the authority, without further action by the stockholders, to issue up to
5,000,000 shares of Preferred Stock in one or more series and to fix the
designations, powers, preferences, privileges and relative participating,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the Common Stock. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting, conversion or other rights that
could adversely affect the voting power and other rights of the holders of
Common Stock. Preferred Stock could thus be issued quickly with terms calculated
to delay or prevent a change in control of the Company or make removal of
management more difficult. Additionally, the issuance of Preferred Stock may
have the effect of decreasing the market price of the Common Stock and may
adversely affect the voting and other rights of the holders of Common Stock.
Upon the closing of this offering, there will be no shares of Preferred Stock
outstanding and the Company has no plans to issue any of the Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF CHARTER DOCUMENTS AND DELAWARE LAW
Charter Documents. The Restated Certificate and Bylaws include a number of
provisions that may have the effect of deterring hostile takeovers or delaying
or preventing changes in control or management of the Company. First, the
Company's Board of Directors will be classified into three classes of directors.
Under Delaware law, directors of a corporation with a classified board may be
removed only for cause unless the corporation's certificate of incorporation
provides otherwise. The Restated Certificate does not provide otherwise. See
"Management -- Directors, Executive Officers and Other Key Employees." In
addition, the Restated Certificate provides that all stockholder action must be
effected at a duly called meeting of stockholders and not by a consent in
writing. Further, the Bylaws limit who may call special meetings of the
stockholders. The Company's Restated Certificate does not include a provision
for cumulative voting for directors. Under cumulative voting, a minority
stockholder holding a sufficient percentage of a class of shares may be able to
ensure the election of one or more directors. Finally, the Bylaws establish
procedures, including advance notice procedures, with regard to the nomination
of candidates for election as directors and stockholder proposals. These and
other provisions of the Restated Certificate and Bylaws and Delaware law could
discourage potential acquisition proposals and could delay or prevent a change
in control or management of the Company. See "Risk Factors -- Effects of Certain
Charter and Bylaw Provisions."
Delaware Takeover Statutes. The Company is subject to the provisions of
Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly held Delaware corporation from
59
<PAGE> 61
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three years
prior, did own) 15% or more of the corporation's voting stock.
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and the holders (or their
permitted transferees) of approximately 4,512,345 shares of Common Stock
("Holders"), the Holders are entitled to certain rights with respect to the
registration of such shares under the Securities Act. If the Company proposes to
register its Common Stock, subject to certain exceptions, under the Securities
Act, the Holders are entitled to notice of the registration and are entitled to
include, at the Company's expense, such shares therein, provided that the
managing underwriters have the right to limit the number of such shares included
in the registration. Registration rights with respect to this offering have been
waived. In addition, certain of the Holders may require the Company, on no more
than two occasions and, on one of such occasions, at the Company's expense, to
file a registration statement under the Securities Act with respect to their
shares of Common Stock. Such rights may not be exercised until six months after
the closing of this offering. Further, certain Holders, at their expense, may
require the Company to register the shares on Form S-3 when such form becomes
available to the Company, subject to certain conditions and limitations. Such
right expires on the tenth anniversary of the closing of this offering.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, National Association has been appointed as the
transfer agent and registrar for the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering and the Baxter Private Placement, the
Company will have outstanding 8,885,878 shares of Common Stock, based on the
number of shares of Preferred Stock and Common Stock outstanding as of December
31, 1996 and assuming no exercise of the Underwriters' over-allotment option. Of
these shares, all the shares sold in this offering will be freely tradeable
without restrictions or further registration under the Securities Act. The
remaining 6,885,878 shares of Common Stock held by existing stockholders are
Restricted Shares. Restricted Shares may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act. As a result of
contractual restrictions and the provisions of Rule 144 and 701, additional
shares will be available for sale in the public market as follows: (i) no
Restricted Shares will be eligible for immediate sale on the date of this
Prospectus, (ii) 5,892,000 Restricted Shares, 164,665 shares of Common Stock
issuable upon exercise of currently outstanding options and 52,152 shares of
Common Stock issuable upon exercise of currently outstanding warrants will be
eligible for sale 180 days after the date of this Prospectus upon expiration of
lock-up agreements and (iii) the remainder of the Restricted Shares will be
eligible for sale from time to time thereafter upon expiration of their
respective two-year holding periods.
Each officer, director and substantially all stockholders of the Company
and holders of options to acquire Common Stock have agreed with the
representatives of the Underwriters for a period of 180 days after the effective
date of this Prospectus (the "Lock-Up Period"), subject to certain exceptions,
not to offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares or any such
securities are then owned by such person or are thereafter acquired directly
from the Company), or to enter into any swap or similar arrangement that
transfers, in whole or in part, the economic
60
<PAGE> 62
risks of ownership of the Common Stock, without the prior written consent of
Morgan Stanley & Co. Incorporated.
As of December 31, 1996, there were 407,383 shares of Common Stock subject
to outstanding options. The Company intends to file registration statements
under the Securities Act to register shares of Common Stock reserved for
issuance under the Incentive Plan, thus permitting the sale of such shares by
non-Affiliates in the public market without restriction under the Securities
Act. Such registration statements will become effective immediately upon filing.
Holders of substantially all of these option shares have also entered into
agreements not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option for contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, or to enter into any swap
or similar agreement that transfers, in whole or in part, the economic risks of
ownership of the Common Stock, during the Lock-Up Period without the prior
written consent of Morgan Stanley & Co. Incorporated.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, any holder, including an Affiliate of the Company,
of Restricted Shares as to which at least two years have elapsed since the later
of the date of the holder's acquisition of such shares from the Company or from
an Affiliate, would be entitled within any three-month period to sell a number
of shares that does not exceed the greater of 1% of the then outstanding shares
of Common Stock (approximately 88,858 shares immediately after the closing of
this offering assuming no exercise of the Underwriters' over-allotment option)
or the average weekly trading volume of the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding the date on which notice of the
sale is filed with the Commission. Sales under Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. However, a person (or persons whose shares
are aggregated) who is not deemed to have been an Affiliate of the Company at
any time during the 90 days immediately preceding the sale and who beneficially
owns Restricted Shares is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above, provided that at least three years
have elapsed since the later of the date the shares were acquired from the
Company or from an Affiliate of the Company. The foregoing is a summary of Rule
144 and is not intended to be a complete description of that rule.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisers prior to the closing of this
offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to stock options granted by the Company
before this offering, along with the shares acquired upon exercise of such
options. Securities issued in reliance on Rule 701 are deemed to be Restricted
Shares and, beginning 90 days after the date of this Prospectus (unless subject
to the contractual restrictions described above), may be sold by persons other
than Affiliates, subject only to the manner of sale provisions of Rule 144 and
by Affiliates under Rule 144 without compliance with its two-year minimum
holding period requirements.
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or will continue after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to time.
As described herein, only a limited number of shares will be available for sale
shortly after this offering because of certain contractual and legal
restrictions on resale. Sales of substantial amounts of Common Stock of the
Company in the public market after the restrictions lapse could adversely affect
the prevailing market price and the ability of the Company to raise equity
capital in the future.
61
<PAGE> 63
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement, the Underwriters named below, for whom Morgan Stanley & Co.
Incorporated and Alex. Brown & Sons Incorporated are serving as Representatives,
have severally agreed to purchase, and the Company has agreed to sell to the
Underwriters, the respective numbers of shares of Common Stock set forth
opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------------------ ---------
<S> <C>
Morgan Stanley & Co. Incorporated.................................
Alex. Brown & Sons Incorporated...................................
----------
Total................................................... 2,000,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any such shares are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock offered hereby directly to the public at the public offering price set
forth on the cover page hereof and part to certain dealers at a price that
represents a concession not in excess of $ per share. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of
$ per share to other Underwriters or to certain other dealers.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 300,000 additional
shares of Common Stock at the initial public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase solely for the purpose of covering
over-allotments, if any, incurred in the sale of the shares of Common Stock
offered hereby. To the extent such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock offered hereby to the Underwriters.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales in excess of five percent of the
number of shares of Common Stock offered hereby to accounts over which they
exercise discretionary authority.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
The Company has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated, it will not offer, sell, contract to sell, or
otherwise dispose of any shares of Common Stock, for a period of 180 days after
the date of this Prospectus, other than any shares of Common Stock issued upon
the exercise of an option or warrant, rights to acquire shares issued pursuant
to equipment or lease financing activities in the ordinary course of the
Company's business or any shares purchased by Baxter pursuant to the
62
<PAGE> 64
Red Cell/Plasma Agreement. In addition, in connection with the offering, the
Company, its executive officers and directors and certain existing stockholders
of the Company, who will own an aggregate of approximately 6,850,000 shares of
Common Stock after the offering, have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, they
will not (a) offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares or any such
securities are then owned by such person or are thereafter acquired directly
from the Company), or (b) enter into any swap or similar arrangement that
transfers, in whole or in part, the economic risk of ownership of the Common
Stock, whether any such transaction described in clause (a) or (b) of this
paragraph is to be settled by delivery of such Common Stock or such other
securities, in cash or otherwise, for a period of 180 days after the date of
this Prospectus, other than (i) as a bona fide gift or gifts, (ii) by will or
intestacy to the undersigned's immediate family or to a trust the beneficiaries
of which are exclusively the undersigned and/or a member or members of his or
her immediate family, (iii) as a distribution to limited partners or
shareholders of the undersigned, or (iv) with the prior written consent of
Morgan Stanley & Co. Incorporated; provided that a gift, transfer or
distribution pursuant to clause (i), (ii) or (iii) above shall be conditioned
upon such donee, transferee or distributee executing and delivering a copy of
this Lock-up Agreement to Morgan Stanley & Co. Incorporated.
The Underwriters have reserved for sale, at the initial public offering
price, up to 6% of the Common Stock offered hereby for employees and directors
of the Company and certain other individuals who have expressed an interest in
purchasing such shares of Common Stock in the offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters to the general public on the same basis as other
shares offered hereby.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation among
the Company and the Representatives of the Underwriters. Among the factors to be
considered in determining the initial public offering price, in addition to
prevailing market and economic conditions, will be the future prospects of the
Company (including the prospects for, and timing of, future revenues) and its
industry in general, sales, earnings and certain other financial and operating
information of the Company in recent periods, an assessment of the Company's
management, the present stage of the Company's development and clinical and
regulatory status, and the price-earnings ratios, price-sales ratios, market
prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. The estimated
initial public offering price range set forth on the cover page of this
Preliminary Prospectus is subject to change as a result of market conditions and
other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by its counsel, Cooley Godward LLP ("Cooley Godward"), San
Francisco, California. Certain legal matters will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. As of the date of this Prospectus, GC&H Investments, an
investment partnership composed of certain partners of and persons associated
with Cooley Godward, beneficially owned 22,447 shares of Common Stock of the
Company.
EXPERTS
The financial statements of Cerus Corporation as of December 31, 1994 and
1995 and for each of the three years in the period ended December 31, 1995
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing
63
<PAGE> 65
elsewhere herein and in the Registration Statement, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The statements in this Prospectus under the captions "Risk
Factors -- Patent and License Uncertainties," "Business -- Patents, Licenses and
Proprietary Rights" and other references herein to intellectual property of the
Company have been reviewed and approved by Medlen & Carroll, patent counsel for
the Company, as experts on such matters, and are included herein in reliance
upon that review and approval. As of the date of this Prospectus, certain
members of Medlen & Carroll beneficially owned 69,691 shares of Common Stock of
the Company.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the shares of Common Stock offered hereby has been filed by the
Company with the Commission under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement and exhibits. A copy of the Registration Statement
may be inspected by anyone without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from those offices upon the payment of certain fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
64
<PAGE> 66
CERUS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statements of Stockholders' Equity (Deficit).......................................... F-5
Statements of Cash Flows.............................................................. F-6
Notes to Financial Statements......................................................... F-8
</TABLE>
F-1
<PAGE> 67
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Cerus Corporation
We have audited the accompanying balance sheets of Cerus Corporation as of
December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cerus Corporation at
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Walnut Creek, California Ernst & Young LLP
April 3, 1996, except for Note 7
as to which the date is January , 1997
The foregoing report is in the form that will be signed upon the completion
of the stock split as described in Note 7.
/s/ Ernst & Young LLP
Walnut Creek, California
January 7, 1997
F-2
<PAGE> 68
CERUS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
ASSETS 1994 1995 SEPTEMBER 30, 1996 PRO FORMA
----------- ----------- ------------------ STOCKHOLDERS'
EQUITY AT
(UNAUDITED) SEPTEMBER 30, 1996
------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 7,802,275 $ 9,659,017 $ 9,476,492
Other current assets.................. 313,603 258,583 289,167
----------- ----------- ------------
Total current assets.................... 8,115,878 9,917,600 9,765,659
Furniture and equipment at cost:
Laboratory and office equipment....... 317,744 508,384 869,475
Leasehold improvements................ 1,427,520 1,440,863 1,440,863
----------- ----------- ------------
1,745,264 1,949,247 2,310,338
Less accumulated depreciation......... 356,720 686,427 1,035,374
----------- ----------- ------------
Net furniture and equipment............. 1,388,544 1,262,820 1,274,964
Deferred financing costs................ -- -- 593,702
Other assets............................ 179,873 168,429 135,135
----------- ----------- ------------
Total assets............................ $ 9,684,295 $11,348,849 $ 11,769,460
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 503,725 $ 257,610 $ 692,820
Accrued compensation and related
expenses........................... 163,600 355,511 375,854
Accrued third-party toxicology and
development expenses............... 586,383 -- 827,500
Accrued financing costs............... -- -- 441,300
Other accrued expenses................ 10,766 42,348 305,087
Deferred revenue...................... 933,241 1,900,504 1,038,672
Current portion of capital lease
obligations........................ 53,067 98,230 120,660
----------- ----------- ------------
Total current liabilities............... 2,250,782 2,654,203 3,801,893
Deferred revenue........................ 1,900,504 -- --
Capital lease obligations, less current
portion............................... 93,811 32,007 107,029
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.001 par value;
3,199,942 shares authorized
(5,000,000 pro forma):
issuable in series: 2,091,593,
2,620,677, and 3,001,630 shares
issued and outstanding at December
31, 1994, December 31, 1995 and
September 30, 1996, respectively
(none pro forma); aggregate
liquidation preference of
$18,485,267 and $24,485,277 at
December 31, 1995 and September 30,
1996, respectively................. 2,092 2,621 3,002 $ --
Common stock, $.001 par value;
4,681,833 shares authorized
(50,000,000 pro forma): 1,413,272,
1,417,895 and 1,906,757 shares
issued and outstanding at December
31, 1994, December 31, 1995 and
September 30, 1996, respectively
(6,319,000 shares issued and
outstanding pro forma)............. 1,413 1,418 1,907 6,319
Additional paid-in capital............ 13,154,907 18,738,135 25,425,415 25,424,005
Deferred compensation................. -- -- (377,340) (377,340)
Notes receivable from stockholders.... (80,588) (80,588) (76,206) (76,206)
Accumulated deficit................... (7,638,626) (9,998,947) (17,116,240) (17,116,240)
----------- ----------- ------------ ------------
Total stockholders' equity.............. 5,439,198 8,662,639 7,860,538 $ 7,860,538
============
----------- ----------- ------------
Total liabilities and stockholders'
equity................................ $ 9,684,295 $11,348,849 $ 11,769,460
=========== =========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 69
CERUS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ---------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Licenses, milestones and
development funding from a
related party............... $ 200,000 $ 3,901,419 $ 6,047,579 $ 3,065,405 $ 2,468,572
Government grants.............. 30,000 894,929 751,356 598,024 598,278
----------- ----------- ----------- ----------- -----------
Total revenue.................... 230,000 4,796,348 6,798,935 3,663,429 3,066,850
Operating expenses:
Research and development....... 2,484,994 5,680,263 8,125,311 6,550,298 8,919,477
General and administrative..... 1,210,357 1,193,838 1,517,152 1,048,423 1,620,464
----------- ----------- ----------- ----------- -----------
Total operating expenses......... 3,695,351 6,874,101 9,642,463 7,598,721 10,539,941
----------- ----------- ----------- ----------- -----------
Loss from operations............. (3,465,351) (2,077,753) (2,843,528) (3,935,292) (7,473,091)
Other income (expense):
Interest income................ 25,886 320,681 500,028 356,060 368,929
Interest expense............... (76,001) (43,017) (16,821) (12,644) (13,131)
----------- ----------- ----------- ----------- -----------
Total other income (expense)..... (50,115) 277,664 483,207 343,416 355,798
----------- ----------- ----------- ----------- -----------
Net loss......................... $(3,515,466) $(1,800,089) $(2,360,321) $(3,591,876) $(7,117,293)
=========== =========== =========== =========== ===========
Pro forma net loss per share..... $ (0.38) $ (1.08)
=========== ===========
Shares used in computing pro
forma net loss per share....... 6,233,242 6,581,628
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 70
CERUS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
------------------ ------------------ PAID-IN DEFERRED FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS DEFICIT EQUITY (DEFICIT)
--------- ------ --------- ------ ----------- ------------ ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances
at
December
31,
1993... 1,125,000 $1,125 1,499,399 $1,499 $ 5,411,078 $ -- $ (91,552) $ (5,838,537) $ (516,387)
Issuance
of
common
stock... -- -- 5,880 6 3,194 -- -- -- 3,200
Repurchase
of
common
stock
through
cancellation
of notes
receivable... -- -- (92,007) (92) (6,167) -- 6,259 -- --
Issuance
of
Series
C
convertible
preferred
stock,
net
of
issuance
costs
of
$59,912... 966,540 967 -- -- 7,671,441 -- -- -- 7,672,408
Issuance
of
warrants
to
purchase
Series
C
preferred
stock... -- -- -- -- 75,000 -- -- -- 75,000
Exercise
of
warrants
to
purchase
Series
C
preferred
stock... 53 -- -- -- 361 -- -- -- 361
Payment
on
notes
receivable... -- -- -- -- -- -- 4,705 -- 4,705
Net
loss... -- -- -- -- -- -- -- (1,800,089) (1,800,089)
--------- ------ --------- ------ ----------- --------- -------- ----------- -----------
Balances
at
December
31,
1994... 2,091,593 2,092 1,413,272 1,413 13,154,907 -- (80,588) (7,638,626) 5,439,198
Exercise
of
stock
options... -- -- 4,623 5 1,681 -- -- -- 1,686
Issuance
of
Series
D
convertible
preferred
stock,
net
of
issuance
costs
of
$60,806... 529,084 529 -- -- 5,494,047 -- -- -- 5,494,576
Issuance
of
warrants
to
purchase
Series
D
preferred
stock... -- -- -- -- 87,500 -- -- -- 87,500
Net
loss... -- -- -- -- -- -- -- (2,360,321) (2,360,321)
--------- ------ --------- ------ ----------- --------- -------- ----------- -----------
Balances
at
December
31,
1995... 2,620,677 2,621 1,417,895 1,418 18,738,135 -- (80,588) (9,998,947) 8,662,639
Exercise
of
stock
options
(unaudited)... -- -- 488,862 489 252,658 -- -- -- 253,147
Issuance
of
Series
E
convertible
preferred
stock,
net
of
issuance
costs
of
$95,213
(unaudited)... 380,953 381 -- -- 5,904,407 -- -- -- 5,904,788
Payment
on
notes
receivable
(unaudited)... -- -- -- -- -- -- 4,382 -- 4,382
Deferred
compensation
(unaudited)... -- -- -- -- 530,215 (530,215) -- -- --
Amortization
of
deferred
compensation
(unaudited)... -- -- -- -- -- 152,875 -- -- 152,875
Net
loss
(unaudited)... -- -- -- -- -- -- -- (7,117,293) (7,117,293)
--------- ------ --------- ------ ----------- --------- -------- ----------- -----------
Balance
at
September
30,
1996
(unaudited)... 3,001,630 $3,002 1,906,757 $1,907 $25,425,415 $ (377,340) $ (76,206) $(17,116,240) $ 7,860,538
========= ====== ========= ====== =========== ========= ======== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 71
CERUS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................. $(3,515,466) $(1,800,089) $(2,360,321) $(3,591,876) $(7,117,293)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization.......... 131,447 269,954 369,267 260,634 354,242
Amortization of deferred
compensation........................ -- -- -- -- 152,875
Common stock issued for consulting
services............................ 4,557 3,200 -- -- --
Issuance of preferred stock for payment
of interest......................... -- 33,210 -- -- --
Changes in operating assets and
liabilities:
Other current assets................ (20,297) (162,134) 72,220 (126,937) (30,584)
Other assets........................ 63,525 (7,157) 42,184 57,006 27,999
Accounts payable.................... (88,506) 367,699 (246,115) (332,507) 435,210
Accrued compensation and related
expenses.......................... 16,317 133,788 191,911 98,291 20,343
Accrued third-party toxicology and
development expenses.............. -- 586,383 (586,383) (586,383) 827,500
Other accrued expenses.............. 44,413 (8,334) 31,582 60,358 262,739
Income taxes payable................ 68,140 (68,140) -- -- --
Deferred revenue.................... 5,000,000 (2,166,255) (933,241) 1,298,933 (861,832)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities............................. 1,704,130 (2,817,875) (3,418,896) (2,862,481) (5,928,801)
INVESTING ACTIVITIES
Purchases of furniture and equipment..... (280,649) (989,656) (124,359) (109,638) (134,155)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities.... (280,649) (989,656) (124,359) (109,638) (134,155)
FINANCING ACTIVITIES
Net proceeds from sale of preferred
stock.................................. 2,430,600 5,569,026 5,494,576 5,494,576 5,904,788
Proceeds from issuance of common stock... 1,995 -- 1,686 770 253,147
Deferred financing costs................. -- -- -- -- (152,402)
Payments on notes receivable from
shareholders........................... -- 4,705 -- -- 4,382
Proceeds from convertible notes
payable................................ 1,994,698 -- -- -- --
Payments on capital lease obligations.... -- (40,157) (96,265) (63,038) (129,484)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities............................. 4,427,293 5,533,574 5,399,997 5,432,308 5,880,431
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 5,850,774 1,726,043 1,856,742 2,460,189 (182,525)
Cash and cash equivalents, beginning of
period................................. 225,458 6,076,232 7,802,275 7,802,275 9,659,017
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period................................. $ 6,076,232 $ 7,802,275 $ 9,659,017 $10,262,464 $ 9,476,492
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 72
CERUS CORPORATION
STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures:
Interest paid.......................... $ 1,162 $ -- $ 16,821 $ 12,644 $ 13,131
=========== =========== =========== =========== ===========
Income taxes paid...................... $ -- $ 68,140 $ -- $ -- $ --
=========== =========== =========== =========== ===========
Supplemental schedule of noncash
investing and financing activities:
Repurchase of common stock through
cancellation of notes receivable.... $ -- $ 6,259 $ -- $ -- $ --
=========== =========== =========== =========== ===========
Issuance of preferred stock warrants in
connection with an operating lease
line................................ $ 29,600 $ 75,000 $ 87,500 $ 87,500 $ --
=========== =========== =========== =========== ===========
Issuance of Series C preferred stock in
exchange for convertible notes
payable and accrued interest........ $ -- $ 2,070,533 $ -- $ -- $ --
=========== =========== =========== =========== ===========
Capital lease obligations incurred..... $ -- $ 187,035 $ 79,624 $ 79,624 $ 226,936
=========== =========== =========== =========== ===========
Deferred compensation related to stock
option grants....................... $ -- $ -- $ -- $ -- $ 530,215
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE> 73
CERUS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Cerus Corporation (the "Company"), incorporated in California on September
19, 1991 as Steritech, Inc., is developing systems designed to improve the
safety of blood transfusions by inactivating infectious pathogens in blood
components used for transfusion (platelets, fresh frozen plasma ("FFP") and red
blood cells) and inhibiting the leukocyte (white blood cell) activity that is
responsible for certain adverse immune and other transfusion-related reactions.
The Company has entered into two development and commercialization agreements
with Baxter Healthcare Corporation ("Baxter") to develop, manufacture and
market, these pathogen inactivation systems. The Company has not received any
revenues from product sales, and all revenues recognized by the Company to date
have resulted from the Company's agreements with Baxter and federal research
grants. The Company will be required to conduct significant research,
development, testing and regulatory compliance activities on its pathogen
inactivation systems that, together with anticipated general and administrative
expenses, are expected to result in substantial additional losses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
INTERIM FINANCIAL INFORMATION
The financial information at September 30, 1996 and for the nine-month
periods ended September 30, 1995 and 1996 is unaudited, but includes all
adjustments that the Company considers necessary for a fair presentation of the
financial information set forth therein, in accordance with generally accepted
accounting principles. The results for the nine months ended September 30, 1996
should not be considered indicative of the results to be expected for any future
period or for the entire year ended December 31, 1996.
REVENUES AND RESEARCH AND DEVELOPMENT EXPENSES
Revenues related to the cost reimbursement provisions under development
contracts are recognized as the costs on the project are incurred. Revenues
related to milestones specified under development contracts are recognized as
the milestones are achieved. Prepaid license fees, included in deferred revenue,
are recognized as revenues on a pro rata basis upon achievement of milestones.
Research and development costs are expensed as incurred.
The Company receives certain United States government grants which support
the Company's research effort in defined research projects. These grants
generally provide for reimbursement of approved costs incurred as defined in the
various grants. Revenues associated with these grants are recognized as costs
under each grant are incurred.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities less
than three months when purchased to be cash and cash equivalents. Substantially
all of the Company's cash and cash equivalents are maintained by two major
financial institutions.
F-8
<PAGE> 74
CERUS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
DEPRECIATION AND AMORTIZATION
Depreciation on equipment is calculated on a straight-line basis over the
estimated useful lives of the assets (principally five years for laboratory
equipment and furniture and three years for office equipment). Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease term or the estimated useful lives of the improvements.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). The Company will adopt SFAS 123 in 1996. It is the
Company's intention to continue to account for employee stock options in
accordance with Accounting Principles Board Opinion No. 25 and to adopt the
"disclosure only" alternative described in SFAS 123.
INCOME TAXES
The Company accounts for income taxes based upon Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common stock equivalent shares from convertible
preferred stock and from stock options and warrants are not included as the
effect is anti-dilutive. Pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins, however, common and common equivalent shares (stock
options, warrants and preferred stock) issued by the Company at prices below the
initial public offering price during the twelve-month period prior to the
initial public offering have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method at the
estimated initial public offering price for stock options and warrants and the
as-if-converted method for preferred stock). Per share information calculated on
the above basis is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEARS ENDED DECEMBER 31, 30,
---------------------------------------- ---------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net loss per share......... $ (1.25) $ (0.65) $ (0.87) $ (1.32) $ (2.61)
========== ========== ========== ========== ==========
Shares used in computing
net loss per share....... 2,801,254 2,754,616 2,727,029 2,726,515 2,729,386
========== ========== ========== ========== ==========
</TABLE>
PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share has been computed as described above and also
gives effect, even if antidilutive, to common equivalent shares from convertible
preferred shares that will automatically convert to common shares upon the
closing of the Company's initial public offering (using the as-if-converted
method).
F-9
<PAGE> 75
CERUS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
PRO FORMA STOCKHOLDER'S EQUITY
The Company's unaudited pro forma stockholders' equity as of September 30,
1996 gives effect to the conversion of all convertible preferred stock
outstanding into an aggregate of 4,412,243 shares of common stock, effective
upon the closing of the Company's initial public offering. The unaudited pro
forma stockholders' equity does not assume the exercise of any outstanding
warrants to purchase shares of capital stock.
2. LICENSING AGREEMENTS WITH BAXTER HEALTHCARE CORPORATION, A RELATED PARTY OF
THE COMPANY
In December 1993, the Company entered into a development, manufacturing and
marketing agreement with Baxter relating to the development of a system for the
inactivation of pathogens in the platelet component of human blood (the
"Platelet System"). The agreement grants to Baxter the exclusive right to market
and distribute the Platelet System throughout the world, subject to certain
conditions.
In 1993, under the terms of the agreement, the Company received $5.2
million in license fees and milestone and development payments. In 1994 and
1995, the Company received milestone and development payments from Baxter under
this agreement totaling $1.7 million and $2.5 million, respectively. Under this
agreement, the Company is to receive a specified percentage of revenues from
sales of inactivation system disposables after deducting from such revenues the
amount by which Baxter's and the Company's cost of goods for the inactivation
system disposables exceeds certain dollar amounts specified in the agreement.
In July 1995, the Company entered into two interim research funding
agreements with Baxter relating to the development of certain technologies for
the pathogen inactivation of the red cell and FFP components of human blood.
Under the terms of these agreements, the Company received cash proceeds of
$2,580,000 in 1995 to be used for certain incurred and future research and
development expenses.
On April 1, 1996, the Company entered into a development, manufacturing and
marketing agreement with Baxter to develop pathogen inactivation systems for
blood components and products other than platelets. The agreement grants Baxter
the exclusive right to market and distribute the systems throughout the world,
subject to certain conditions. The agreement specifies two initial programs for
pathogen inactivation systems for red cells and FFP. These programs are under
development by the Company. The costs incurred during 1996 on these two programs
will be funded by the Company. Subsequent costs will be shared equally by the
parties upon approval to commence Phase 3 clinical trials for the Platelet
System. Under this agreement, the Company and Baxter are to share gross profits
from sales of inactivation systems after deducting from such gross profits a
specified percentage allocation to be retained by the marketing party for
marketing and administrative expenses. Either party may terminate work on any or
all projects with 90 days written notice. Neither party, however, may terminate
work on the red cell or plasma projects prior to January 1, 1998.
Under the terms of this agreement, Baxter purchased 190,477 shares of
Series E preferred stock at $15.75 per share for $3,000,000 in cash on April 1,
1996, and an additional 190,476 shares of Series E preferred stock on July 1,
1996 at $15.75 per share for $3,000,000 in cash. The agreement calls for
specific equity investments by Baxter to be made at 120% of the market price at
the time of each investment, subject to the achievement of certain milestones as
follows: (i) $5 million, upon the later of January 10, 1997 and the approval to
commence a Phase 3 study in the United States or Europe in the program under the
Platelet Agreement, (ii) either $5 million, upon the later of January 10, 1998
and the achievement of both (a) the mutual determination by the Company and
Baxter that there is sufficient data to conclude that the Phase 3 platelet
trials are likely to satisfy specified criteria (the "Interim Platelet
Determination") and (b) the filing of an IND with the FDA to begin a Phase 1
study under the red cell program or comparable filing in Europe under such
program, or separate equity investments of $2 million, upon the later of January
10, 1998 and the Interim
F-10
<PAGE> 76
CERUS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Platelet Determination and $3 million, upon the later of January 10, 1998 and
the approval of an IND by the FDA under the red cell program or comparable
approval in Europe under such program, and (iii) $5 million, upon the later of
January 10, 1999 and the achievement of both (a) the approval by the FDA to
commence a Phase 2 study in the United States or comparable approval in Europe
under the red cell project and the (b) approval of a New Drug Application by the
FDA under the platelet program or comparable approval in Europe under such
program.
Baxter has agreed that it will not at any time, nor will it permit any of
its affiliates, to own capital stock of the Company having 20.1% or more of the
outstanding voting power of the Company. Such restrictions on stock purchases
will not apply in the event a third party makes a tender offer for a majority of
the outstanding voting securities of the Company or if the Board of Directors of
the Company determines to liquidate or sell to a third party substantially all
of the assets or a majority of the voting securities of the Company or to
approve a merger or consolidation in which the Company's stockholders will not
own a majority of the voting securities of the surviving entity.
Revenue relating to licenses, milestones and development funding for all
periods presented are as a result of agreements with Baxter.
3. LEASES
The Company leases its office facilities and certain equipment under
non-cancelable operating leases with initial terms in excess of one year which
require the Company to pay operating costs, property taxes, insurance and
maintenance. These facility leases generally contain renewal options and
provisions adjusting the lease payments.
In 1994, the Company entered into various capital lease agreements for
laboratory and office equipment. Capital lease obligations represent the present
value of future rental payments under these leases. The original cost and
accumulated amortization on the equipment under capital leases is $187,035 and
$37,408, respectively, at December 31, 1994 and $266,659 and $71,465,
respectively, at December 31, 1995.
Future minimum payments under capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- --------------------------------------------------------------------- -------- ----------
<S> <C> <C>
1996............................................................ $106,490 $ 625,112
1997............................................................ 33,215 540,517
1998............................................................ -- 356,995
1999............................................................ -- 140,209
2000............................................................ -- --
-------- ----------
Total minimum lease payments.................................. 139,705 $1,662,833
==========
Amount representing interest.................................... 9,468
--------
Present value of net minimum lease payments..................... 130,237
Current portion................................................. 98,230
--------
Long-term portion............................................... $ 32,007
========
</TABLE>
F-11
<PAGE> 77
CERUS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Rent expense for office facilities and certain equipment was $460,783,
$602,662, and $801,632 for the years ended December 31, 1993, 1994 and 1995,
respectively.
4. STOCKHOLDERS' EQUITY
PREFERRED STOCK
Preferred stock consists of the following:
<TABLE>
<CAPTION>
SHARES DESIGNATED SHARES ISSUED AND OUTSTANDING
------------------------------------- -------------------------------------
DECEMBER 31, DECEMBER 31,
--------------------- SEPTEMBER 30, --------------------- SEPTEMBER 30,
1994 1995 1996 1994 1995 1996
--------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Series A.................. 761,079 761,079 761,079 714,286 714,286 714,286
Series B.................. 305,461 305,461 305,461 285,714 285,714 285,714
Series C.................. 1,147,449 1,147,449 1,147,449 1,091,593 1,091,593 1,091,593
Series D.................. -- 605,000 605,000 -- 529,084 529,084
Series E.................. -- -- 380,953 -- -- 380,953
---------- ---------- ---------- ---------- ---------- ----------
2,213,989 2,818,989 3,199,942 2,091,593 2,620,677 3,001,630
========== ========== ========== ========== ========== ==========
</TABLE>
CONVERTIBLE PREFERRED STOCK
Holders of Series A, B, C, D and E convertible preferred stock are entitled
to receive non-cumulative, annual dividends of $0.46, $0.61, $0.96, $1.26 and
$1.89 per share, respectively, prior to any dividends on common stock. Subject
to certain conversion price provisions, each share of preferred stock is
convertible into 1.47 shares of common stock at the option of the stockholders.
Preferred stockholders are entitled to the number of votes equal to the number
of shares of common stock into which the preferred stock is convertible. Shares
automatically convert upon the closing of an initial public offering of common
stock with a per share price of at least $13.13 per share (as adjusted for stock
splits, stock dividends and the like) and with net cash proceeds to the Company
of at least $10,000,000 or at any time more than two-thirds of the shares of
preferred stock authorized, issued and outstanding have been converted.
In the event of liquidation, dissolution, or winding up of the Company,
holders of Series A, B, C, D and E convertible preferred stock have a
liquidation preference over holders of common stock equal to $3.85, $5.075,
$8.00, $10.50 and $15.75 per share, respectively, plus any declared but unpaid
dividends (none as of June 30, 1996). Any remaining assets would be distributed
pro rata to holders of common and preferred shares on an as-converted basis
until the preferred stockholders of Series A, B, C, D and E receive an aggregate
of $15.40, $20.30, $32.00, $31.50 and $15.75, respectively, inclusive of the
respective liquidation preference amounts referred to above.
F-12
<PAGE> 78
CERUS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1992 STOCK OPTION PLAN
In January 1992, the Company's Board of Directors approved the 1992 Stock
Option Plan (the "Plan"), which provides for the grant of stock options to
purchase up to 588,000 of the Company's common stock. An additional 441,000
shares were reserved under the Plan for future grant by the Company's Board of
Directors in 1996. Under the Plan, two types of options may be granted:
Incentive Stock Options ("ISOs") and Non-Qualified Stock Options ("NQSOs"). The
ISOs may be granted at a price per share not less than the fair market value at
the date of grant. The NQSOs may be granted at a price per share not less than
85% of the fair market value at the date of grant. The option term is 10 years.
Vesting, as determined by the Board of Directors, generally occurs ratably over
four years. In the event option holders cease to be employed by the Company,
except in the event of death or disability or as otherwise provided in the
option grant, all unvested options are forfeited and all vested options must be
exercised within a three-month period, otherwise the options are forfeited.
Options granted are immediately exercisable, and unvested (but issued) shares
are subject to repurchase by the Company if the holder is no longer employed by
the Company. As of September 30, 1996, 166,293 shares were subject to this
repurchase provision.
Activity under the Plan is set forth below:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------------
NUMBER OF
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Balances at December 31, 1993...................................... 237,537 $.262- .345
Granted.......................................................... 265,129 .544
Cancelled........................................................ (4,410) .544
-------- -----------
Balances at December 31, 1994...................................... 498,256 .262- .544
Granted.......................................................... 75,705 .714
Cancelled........................................................ (63,290) .262- .544
Exercised........................................................ (4,623) .262- .544
-------- -----------
Balances at December 31, 1995...................................... 506,048 .262- .714
Granted (unaudited).............................................. 412,290 .714-8.163
Cancelled (unaudited)............................................ (5,879) .262- .714
Exercised (unaudited)............................................ (488,862) .544-2.721
-------- -----------
Balances at September 30, 1996 (unaudited)......................... 423,595 $.262-8.163
======== ===========
</TABLE>
At December 31, 1995, options to purchase 300,265 shares of common stock
were vested at prices ranging from $.262-$.714. At September 30, 1996, options
to purchase 406,377 shares of common stock were vested at prices ranging from
$.262-$2.721 and options to purchase 552,887 shares of common stock were
available for future grant.
The Company recognized deferred compensation of $530,215 for the difference
between the exercise price and deemed fair value of certain stock options
granted during the nine months ended September 30, 1996. This amount is being
amortized by periodic charges to operations over the four year vesting periods
of the individual options. Amortization expense related to deferred compensation
totaled $152,875 for the nine-month period ended September 30, 1996.
F-13
<PAGE> 79
CERUS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
WARRANTS
The Company had the following warrants outstanding at December 31, 1995 to
purchase shares of preferred stock:
<TABLE>
<CAPTION>
NUMBER PREFERRED EXERCISE DATE
OF SHARES STOCK PRICE PER SHARE ISSUED
- --------- --------- --------------- ------ EXPIRATION OF WARRANTS
-----------------------------------------------
At the earlier of:
<C> <C> <C> <C> <S>
May 2002 or five years after initial public
20,779 Series A $ 3.85 5/92 offering
July 2003 or five years after initial public
3,949 Series B $ 5.07 7/93 offering
15,798 Series B $ 5.07 5/94 May 1998 or initial public offering
17,517 Series C $ 6.80 5/94 August 1998 or initial public offering
May 2004 or five years after initial public
6,250 Series C $ 8.00 5/94 offering
April 2005 or five years after initial public
4,500 Series D $ 10.50 4/95 offering
68,793
</TABLE>
In May 1993 and August 1993, the Company entered into convertible note
payable agreements with investors for $1,994,698 cash with the principal amount
of the notes bearing interest at 8% per annum. The notes were due on demand.
Additionally, the note holders were issued warrants to purchase 15,798 and
17,570 shares of Series B and Series C preferred stock, respectively, which are
included above less any redeemed warrants. The purchase price for the warrants
was $.001 per warrant. In March 1994, these note holders converted their notes
and accrued interest, together with an additional $3,550,321 in cash, for
706,758 shares of Series C preferred stock for $8.00 per share. In September
1994, 53 shares under the Series C warrant were exercised at $6.80 per share.
All of the remaining warrants were issued in connection with an operating lease
line.
All of the outstanding warrants will become exercisable for common stock if
the Company completes an initial public offering of its common stock.
5. INCOME TAXES
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Net operating loss carryforward................................... $ 1,600,000 $ 2,600,000
Research and development credit carryforward...................... 300,000 400,000
Deferred revenue.................................................. 1,100,000 800,000
Capitalized research and development.............................. 100,000 300,000
Other............................................................. 100,000 100,000
----------- -----------
Gross deferred tax assets......................................... 3,200,000 4,200,000
Valuation allowance............................................... (3,200,000) (4,200,000)
----------- -----------
Net deferred tax assets........................................... $ -- $ --
=========== ===========
</TABLE>
The valuation allowance increased by $692,000 and $1,000,000 for the fiscal
years ended in 1994 and 1995, respectively. The Company believes that, based on
a number of factors, the available objective evidence creates sufficient
uncertainty regarding the realizability of the deferred tax assets such that a
full valuation allowance has been recorded. These factors include the Company's
history of net losses since its inception, the
F-14
<PAGE> 80
CERUS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
need for FDA approval of the Company's products prior to commercialization,
expected near-term future losses, the nature of the Company's deferred tax
assets, the lack of firm sales backlog, no significant excess of appreciated
asset value over the tax basis of the Company's net assets and the absence of
taxable income in prior carryback years.
Although management's operating plans assume, beyond the near-term, taxable
and operating income in future periods, management evaluation of all available
information in assessing the realizability of the deferred tax assets in
accordance with Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes," indicates that such plans were subject to
considerable uncertainty. Therefore, the valuation allowance was increased to
fully reserve the Company's deferred tax assets. The Company will continue to
assess the realizability of the deferred tax assets based on actual and
forecasted operating results.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $7,200,000 for federal and $1,800,000 for state income tax
purposes. The Company also had research and development tax credit carryforwards
of approximately $300,000 for federal income tax purposes at December 31, 1995.
The federal net operating loss and tax credit carryforwards expire between the
years 2007 and 2010. The state net operating loss expires in 2000.
Utilization of the Company's net operating losses and credits are subject
to a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
6. RETIREMENT PLAN
The Company maintains a defined contribution savings plan (the "401(k)
Plan") that qualifies under the provisions of Section 401(k) of the Internal
Revenue Code and covers all employees of the Company. Under the terms of the
401(k) Plan, employees may contribute varying amounts of their annual
compensation. The Company may contribute a discretionary percentage of qualified
individual employee's salaries, as defined, to the 401(k) Plan. Company
contributions of $2,423, $3,300 and $2,700 were charged to operations in 1993,
1994 and 1995, respectively, in order to cover certain costs of the 401(k) Plan.
7. SUBSEQUENT EVENTS
PROPOSED PUBLIC OFFERING OF COMMON STOCK
On July 24, 1996, the Board of Directors authorized the Company to proceed
with an initial public offering of the Company's common stock. If the offering
is consummated under the terms presently anticipated, all of the outstanding
shares of preferred stock at September 30, 1996 will automatically convert into
4,412,243 shares of common stock. Unaudited pro forma stockholders' equity, as
adjusted for the assumed conversion of all outstanding shares of convertible
preferred stock as of September 30, 1996, is set forth on the accompanying
balance sheet. The unaudited pro forma stockholders' equity does not assume the
exercise of any outstanding warrants to purchase shares of capital stock.
REINCORPORATION AND STOCK SPLIT
On July 24, 1996, the Board of Directors approved a change in the name of
the Corporation to "Cerus Corporation." The Company will effect a stock split of
all outstanding shares of common stock such that each share of common stock will
be split into 1.47 shares of common stock. The stock split is expected to become
effective prior to the effective date of the offering. All common shares in the
accompanying financial statements have been retroactively adjusted to reflect
the stock split. In connection with the stock split, the conversion and exercise
provisions of the outstanding shares of preferred stock, stock options and
warrants
F-15
<PAGE> 81
have been adjusted accordingly. At the same time, the Board authorized the
Company to proceed with the reincorporation of the Company into Delaware. Upon
the reincorporation, the authorized stock of the Company will become 5,000,000
shares of preferred stock, par value $.001 per share, and 50,000,000 shares of
common stock, par value $.001 per share. Also upon reincorporation, the Board of
Directors has the authority, without further action by the stockholders, to
issue up to 5,000,000 shares of preferred stock in one or more series and to fix
the designations, powers, preferences, privileges, and relative participating,
optional or special rights and the qualifications, limitations, or restrictions
thereof, including dividend rights, conversion rights, voting rights, and terms
of redemption and liquidation preferences, any or all of which may be greater
than the rights of the common stock.
EQUITY INCENTIVE PLAN
On July 24, 1996, the Board of Directors adopted, subject to stockholder
approval, the 1996 Equity Incentive Plan (the "Incentive Plan") as an amendment
and restatement of the Company's 1992 Stock Option Plan, and reserved an
additional 441,000 shares of common stock for issuance thereunder. The Incentive
Plan provides for grants of incentive stock options to employees and non
statutory stock options, restricted stock purchase awards, stock appreciation
rights and stock bonuses to employees, directors and consultants of the Company.
EMPLOYEE STOCK PURCHASE PLAN
On July 24, 1996, the Company's Board of Directors approved the Employee
Stock Purchase Plan (the "Purchase Plan") subject to stockholder approval,
covering an aggregate of 220,500 shares of Common Stock. The Purchase Plan is
intended to qualify as an employee stock purchase plan within the meaning of
Section 423(b) of the Code. Under the Purchase Plan, the Board of Directors may
authorize participation by eligible employees, including officers, in periodic
offerings following the adoption of the Purchase Plan. The offering period for
any offering will be no more than 27 months.
TRADE SECRET MATTER
In August 1996, an Australian entity, alleged that its unspecified trade
secrets and know-how were used in the development by the Company of unspecified
compounds for the Company's red cell program without its consent. This entity
has indicated that it is seeking compensation in the form of royalties or a lump
sum payment. Based on its investigation of the matter to date, the Company
believes that the claims are without merit. However, any future litigation
involving these allegations would be subject to inherent uncertainties,
especially in cases where complex technical issues are decided by a lay jury.
There can be no assurance that, if a lawsuit were commenced, it would not be
decided against the Company. In which case, settlement of this claim could have
a material adverse effect upon the Company's business, financial condition and
results of operations.
AMENDMENT TO LICENSING AGREEMENT WITH BAXTER HEATHCARE CORPORATION, A RELATED
PARTY OF THE COMPANY
On January 7, 1997, the Company and Baxter amended the Platelet Agreement
to provide that the Company would receive an additional 2.2% shared revenue from
the sale of the platelet inactivation systems in return for payment by the
Company to Baxter of $5.5 million in 1997 for development costs. However, the
agreement reaffirms the original 50% cost sharing arrangement.
F-16
<PAGE> 82
1. Depiction of DNA virus with psoralen crosslinks indicated. With caption
"ELECTRON MICROGRAPH OF A PSORALEN-TREATED DNA VIRUS.
The psoralen crosslinks inactivate the virus."
2. Depiction of four DNA double helix structures. The first structure depicts
the introduction of psoralen. The second structure depicts the psoralen
moving into the double helix. The third structure depicts the linking of
psoralen to one strand of the DNA helix. The fourth structure depicts the
linking of psoralen to both strands of the DNA helix. With caption
"REPRESENTATION OF THE INACTIVATION PROCESS.
Psoralen moves inside the double helix structure ('docking'). When light is
added, the psoralen undergoes a photochemical reaction that irreversibly binds
one end of its structure to one strand of the DNA helix, forming half the
crosslink ('link'). In the final step, a second photochemical reaction
completes the crosslink between the two DNA strands ('crosslink'), preventing
replication."
<PAGE> 83
CERUS
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the shares of Common Stock being registered. All the amounts shown are
estimates except for the SEC registration fee, the NASD filing fee and the
Nasdaq National Market application fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $12,594
NASD filing fee.................................................... 3,950
Nasdaq National Market application fee............................. 39,715
Blue sky qualification fee and expenses............................
Printing and engraving expenses....................................
Legal fees and expenses............................................
Accounting fees and expenses.......................................
Transfer agent and registrar fees..................................
Miscellaneous......................................................
-------
Total.................................................... $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. The
Registrant's Bylaws provide for mandatory indemnification of its directors and
executive officers and permissible indemnification of officers, employees and
other agents to the maximum extent permitted by the Delaware General Corporation
Law. The Registrant has entered into indemnification agreements with its
executive officers and directors, a form of which is attached as Exhibit 10.1
hereto and incorporated herein by reference. The indemnification agreements
provide the Registrant's officers and directors with further indemnification to
the maximum extent permitted by the Delaware General Corporation Law. The
Company plans to also obtain directors' and officers' insurance to insure its
directors and officers against certain liabilities, including liabilities under
the Securities Act. Reference is also made to Section 8 of the Underwriting
Agreement contained in Exhibit 1.1 hereto, indemnifying officers and directors
of the Registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since July 1993, the Registrant has sold and issued the following
unregistered securities:
(1) In July 1993, the Company issued warrants to purchase an aggregate
of 3,949 shares of Series B Preferred Stock to Comdisco, Inc., in
connection with an equipment lease, at an exercise price of $5.065 per
share.
(2) In May 1994, the Company issued warrants to purchase an aggregate
of 15,798 shares of Series B Preferred Stock to certain non-employee
investors at an exercise price of $5.065 per share, all of which will
expire upon the closing of this offering.
(3) In May 1994, the Company issued warrants to purchase an aggregate
of 6,250 shares of Series C Preferred Stock to Comdisco, Inc., in
connection with an equipment lease, at an exercise price of $8.00 per
share.
(4) In May 1994, the Company issued warrants to purchase an aggregate
of 17,570 shares of Series C Preferred Stock to certain non-employee
investors at an exercise price of $6.80 per share. Of these
II-1
<PAGE> 85
warrants, warrants to purchase 53 shares of Series C Preferred Stock were
exercised. The remaining warrants will expire upon the closing of this
offering.
(5) In December 1993, March through June 1994, the Company sold an
aggregate of 1,091,593 shares of the Company's Series C Preferred Stock to
certain non-employee investors for an aggregate purchase price of
$8,732,680.
(6) In April 1995, the Company issued warrants to purchase an
aggregate of 4,500 shares of Series D Preferred Stock to Comdisco, Inc., in
connection with an equipment lease, at an exercise price of $10.50 per
share.
(7) In April, May and June 1995, the Company sold an aggregate of
529,084 shares of the Company's Series D Preferred Stock to certain
non-employee investors for an aggregate purchase price of $5,555,382.
(8) In April 1996 and July 1996, the Company sold an aggregate of
380,953 shares of the Company's Series E Preferred Stock to Baxter for an
aggregate purchase price of $6,000,000.
(9) From January 1992 to December 1996, the Company granted stock
options to employees, directors and consultants covering an aggregate of
996,554 shares of the Company's Common Stock, at an average exercise price
varying from $0.26 to $10.20. Of such shares, 515,550 shares have been
issued and sold pursuant to the exercise of such options. Options to
purchase 73,579 shares of Common Stock have been canceled or have lapsed
without being exercised or otherwise been canceled.
The Company claimed exemptions under the Securities Act from registration
under the Securities Act for the sale and issuance of securities in the
transaction described in paragraphs (1) through (8) by virtue of Section 4(2) or
Regulation D promulgated thereunder as transactions not involving public
offering. The purchasers in each case represented their intention to acquire the
securities for investment only and with a view to the distribution thereof.
Appropriate legends are affixed to the stock certificates issued in such
transactions. All recipients either received adequate information about the
Registrant or had access, through employment or other relationships, to such
information.
The sales and issuances in the transactions described in paragraph (9)
above were deemed to be exempt from registration under the Securities Act by
virtue of Rule 701 promulgated thereunder, in that they were issued pursuant to
a written compensatory benefit plan, as provided by Rule 701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- ---------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Merger to be used in connection with the
Registrant's Reincorporation in Delaware.
3.1 Registrant's Amended and Restated Certificate of Incorporation.
3.2* Registrant's Amended and Restated Certificate of Incorporation to be effective
following the closing of this offering.
3.3* Registrant's Bylaws.
4.1* Reference is made to Exhibits 3.1 through 3.3.
4.2 Specimen stock certificate.
5.1 Opinion of Cooley Godward LLP.
10.1* Form of Indemnity Agreement to be entered into between the Registrant and each of
its directors and executive officers.
10.2* 1996 Equity Incentive Plan.
10.3* Form of Incentive Stock Option Agreement under the 1996 Equity Incentive Plan.
10.4* Form of Nonstatutory Stock Option Agreement under the 1996 Equity Incentive Plan.
</TABLE>
II-2
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- ---------------------------------------------------------------------------------
<S> <C>
10.5* 1996 Employee Stock Purchase Plan.
10.6** Form of Employee Stock Purchase Plan Offering.
10.7* Warrant Agreement, dated May 11, 1992, between the Registrant and Comdisco, Inc.
to purchase Series A Preferred Stock
10.8* Warrant Agreement, dated July 12, 1993, between the Registrant and Comdisco, Inc.
to purchase Series B Preferred Stock
10.9* Warrant Agreement, dated May 25, 1994, between the Registrant and Comdisco, Inc.
to purchase Series C Preferred Stock
10.10* Warrant Agreement, dated April 25, 1995, between the Registrant and Comdisco,
Inc. to purchase Series D Preferred Stock
10.11* Form of Warrant to purchase shares of Series B Preferred Stock of the Registrant.
10.12* Form of Warrant to purchase shares of Series C Preferred Stock of the Registrant.
10.13* Series D Preferred Stock Purchase Agreement, dated March 1, 1995, between the
Registrant and certain investors.
10.14* Series E Preferred Stock Purchase Agreement, dated April 1, 1996, between the
Registrant and Baxter Healthcare Corporation.
10.15* Common Stock Purchase Agreement, dated September 3, 1996, between the Registrant
and Baxter Healthcare Corporation.
10.16* Amended and Restated Investors' Rights Agreement, dated April 1, 1996, among the
Registrant and certain investors.
10.17*+ Development, Manufacturing and Marketing Agreement, dated December 10, 1993,
between the Registrant and Baxter Healthcare Corporation.
10.18*+ Development, Manufacturing and Marketing Agreement, dated April 1, 1996, between
the Registrant and Baxter Healthcare Corporation.
10.19*+ Supply Agreement, dated July 18, 1994.
10.20*+ Custom Synthesis Agreement, dated March 14, 1996.
10.21* Industrial Real Estate Lease, dated October 1, 1992, between the Registrant and
Shamrock Development Company, as amended on May 16, 1994 and December 21, 1995.
10.22* Real Property Lease, dated August 8, 1996, between the Registrant and S.P. Cuff.
10.23* Lease, dated February 1, 1996, between the Registrant and Holmgren Partners.
10.24 First Amendment to Common Stock Purchase Agreement, dated December 9, 1996,
between the Registrant and Baxter Healthcare Corporation.
10.25+ Amendment, dated as of January 3, 1997, to the Agreement filed as Exhibit 10.17.
10.26 Memorandum of Agreement, dated as of January 3, 1997, between the Registrant and
Baxter Healthcare Corporation.
10.27+ Research, Development, Reduction to Practice and Manufacturing Contract, dated as
of October 1, 1996.
11.1 Statement Regarding Computation of Net Loss Per Share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3** Consent of Medlen & Carroll.
24.1* Power of Attorney. Reference is made to the signature page.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Request is being made for confidential treatment of certain portions of this
exhibit.
(b) Financial Statement Schedules.
II-3
<PAGE> 87
Schedules are omitted because they are not required, they are not
applicable or the information is already included in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the provisions described in Item 14 or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that: (1) for purposes of
determining any liability under the Act, the information omitted from the form
of prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of the
registration statement as of the time it was declared effective, and (2) for the
purpose of determining any liability under the Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE> 88
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Concord, State of California, on the 8th day of January, 1997.
CERUS CORPORATION
By: /s/ STEPHEN T. ISAACS
--------------------------------
Stephen T. Isaacs
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<S> <C> <C>
/s/ STEPHEN T. ISAACS President, Chief Executive January 8, 1997
- ------------------------------------------ Officer and Director
Stephen T. Isaacs (Principal Executive Officer)
/s/ DAVID S. CLAYTON* Vice President, Finance and January 8, 1997
- ------------------------------------------ Chief Financial Officer
David S. Clayton (Principal Financial and
Accounting Officer)
/s/ B. J. CASSIN* Chairman of the Board January 8, 1997
- ------------------------------------------
B. J. Cassin
/s/ JOHN E. HEARST* Director January 8, 1997
- ------------------------------------------
John E. Hearst
/s/ PETER H. MCNERNEY* Director January 8, 1997
- ------------------------------------------
Peter H. McNerney
/s/ DALE A. SMITH* Director January 8, 1997
- ------------------------------------------
Dale A. Smith
/s/ HENRY E. STICKNEY* Director January 8, 1997
- ------------------------------------------
Henry E. Stickney
*By: /s/ STEPHEN T.ISAACS
--------------------------------------
Stephen T. Isaacs
Attorney-in-fact
</TABLE>
II-5
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ----- ---------------------------------------------------------------------- ------------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement.
2.1 * -- Form of Agreement and Plan of Merger to be used in connection with the
Registrant's Reincorporation in Delaware.
3.1 -- Registrant's Amended and Restated Certificate of Incorporation.
3.2 * -- Registrant's Amended and Restated Certificate of Incorporation to be
effective following the closing of this offering.
3.3 * -- Registrant's Bylaws.
4.1 * -- Reference is made to Exhibits 3.1 through 3.3.
4.2 -- Specimen stock certificate.
5.1 -- Opinion of Cooley Godward LLP.
10.1 * -- Form of Indemnity Agreement to be entered into between the Registrant
and each of its directors and executive officers.
10.2 * -- 1996 Equity Incentive Plan.
10.3 * -- Form of Incentive Stock Option Agreement under the 1996 Equity
Incentive Plan.
10.4 * -- Form of Nonstatutory Stock Option Agreement under the 1996 Equity
Incentive Plan.
10.5 * -- 1996 Employee Stock Purchase Plan.
10.6 ** -- Form of Employee Stock Purchase Plan Offering.
10.7 * -- Warrant Agreement, dated May 11, 1992, between the Registrant and
Comdisco, Inc. to purchase Series A Preferred Stock
10.8 * -- Warrant Agreement, dated July 12, 1993, between the Registrant and
Comdisco, Inc. to purchase Series B Preferred Stock
10.9 * -- Warrant Agreement, dated May 25, 1994, between the Registrant and
Comdisco, Inc. to purchase Series C Preferred Stock
10.10* -- Warrant Agreement, dated April 25, 1995, between the Registrant and
Comdisco, Inc. to purchase Series D Preferred Stock
10.11* -- Form of Warrant to purchase shares of Series B Preferred Stock of the
Registrant.
10.12* -- Form of Warrant to purchase shares of Series C Preferred Stock of the
Registrant.
10.13* -- Series D Preferred Stock Purchase Agreement, dated March 1, 1995,
between the Registrant and certain investors.
10.14* -- Series E Preferred Stock Purchase Agreement, dated April 1, 1996,
between the Registrant and Baxter Healthcare Corporation.
10.15* -- Common Stock Purchase Agreement, dated September 3, 1996, between the
Registrant and Baxter Healthcare Corporation.
10.16* -- Amended and Restated Investors' Rights Agreement, dated April 1, 1996,
among the Registrant and certain investors.
10.17*+ -- Development, Manufacturing and Marketing Agreement, dated December 10,
1993, between the Registrant and Baxter Healthcare Corporation.
10.18*+ -- Development, Manufacturing and Marketing Agreement, dated April 1,
1996, between the Registrant and Baxter Healthcare Corporation.
10.19*+ -- Supply Agreement, dated July 18, 1994.
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ----- ---------------------------------------------------------------------- ------------
<S> <C> <C> <C>
10.20*+ -- Custom Synthesis Agreement, dated March 14, 1996.
10.21* -- Industrial Real Estate Lease, dated October 1, 1992, between the
Registrant and Shamrock Development Company, as amended on May 16,
1994 and December 21, 1995.
10.22* -- Real Property Lease, dated August 8, 1996, between the Registrant and
S.P. Cuff.
10.23* -- Lease, dated February 1, 1996, between the Registrant and Holmgren
Partners.
10.24 -- First Amendment to Common Stock Purchase Agreement, dated December 9,
1996, between the Registrant and Baxter Healthcare Corporation.
10.25+ -- Amendment dated as of January 3, 1997, to the Agreement filed as
Exhibit 10.17.
10.26 -- Memorandum of Agreement, dated as of January 3, 1997, between the
Registrant and Baxter Healthcare Corporation.
10.27+ -- Research, Development, Reduction to Practice and Manufacturing
Contract, dated as of October 1, 1996.
11.1 -- Statement Regarding Computation of Net Loss Per Share.
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.
23.2 -- Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3 ** -- Consent of Medlen & Carroll.
24.1 * -- Power of Attorney. Reference is made to the signature page.
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Request is being made for confidential treatment of certain portions of this
exhibit.
<PAGE> 1
Draft of January 5, 1997
2,000,000 Shares
CERUS CORPORATION
Common Stock
$.001 par value
UNDERWRITING AGREEMENT
__________ __, 1997
<PAGE> 2
__________ __, 1997
Morgan Stanley & Co. Incorporated
Alex. Brown & Sons Incorporated
as Representatives of the several Underwriters
named in Schedule I hereto
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
Cerus Corporation, a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters"), an aggregate of 2,000,000 shares of its common stock ($.001 per
share par value) (the "Firm Shares").
The Company also proposes to issue and sell to the several Underwriters
not more than an additional 300,000 shares of its common stock ($.001 per share
par value) (the "Additional Shares"), if and to the extent that you, as managers
of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Article II hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of common
stock, ($.001 per share par value), of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement;" the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company files a registration statement to register a portion of the
Shares and relies on Rule 462(b) under the Securities Act for such registration
statement to become effective upon filing with the Commission (the "Rule 462
Registration Statement"), then any reference to the "Registration Statement"
shall be deemed to refer to both the registration statement referred to above
(Commission File No. 333-11341) and the Rule 462 Registration Statement, in each
case as amended from time to time.
I.
The Company represents and warrants to each of the Underwriters that:
(a) The Registration Statement has become effective, no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
<PAGE> 3
(b) (i) The Registration Statement, when it became effective, did not
contain, and as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
paragraph (b) do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company.
(d) The Company does not own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity.
(e) The Company has good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned by it
which is material to the business of the Company in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company; and any real property and buildings held under lease by the Company are
held by it under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and currently
proposed to be made of such property and buildings by the Company except as
described in or contemplated by the Prospectus.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of the
Shares to be sold by the Company have been duly authorized and are validly
issued, fully paid and non-assessable. Except as set forth in the Prospectus,
the Company does not have outstanding any options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible securities
or obligations. All outstanding shares of capital stock and options and other
rights to acquire capital stock have been issued in compliance with the
registration and qualification provisions of all applicable securities laws and
were not issued in violation of any preemptive rights, rights of first refusal
or other similar rights.
(h) The Shares have been duly authorized and, when issued and delivered
in accordance with the terms of this Agreement, will be validly issued, fully
paid and non-assessable, and the issuance of such Shares will not be subject to
any preemptive rights, rights of first refusal or similar rights.
(i) This Agreement has been duly authorized, executed and delivered by
the Company.
-2-
<PAGE> 4
(j) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene any
provision of applicable law or the certificate of incorporation or bylaws of the
Company, or any agreement or other instrument binding upon the Company that is
material to the Company, taken as a whole, or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the Company, and
no consent, approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by the Company of
its obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the Shares.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company from that set forth in the Prospectus.
(l) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, (i) the Company has not
incurred any material liability or obligation, direct or contingent, nor entered
into any material transaction in each case not in the ordinary course of
business; (ii) the Company has not purchased any of its outstanding capital
stock other than unvested shares from former employees, directors or consultants
nor declared, paid or otherwise made any dividend or distribution of any kind on
its capital stock other than ordinary and customary dividends; and (iii) there
has not been any material change in the capital stock, short-term debt or
long-term debt of the Company, except in each case as described in or
contemplated by the Prospectus.
(m) There are no legal or governmental proceedings pending or, to the
Company's knowledge, threatened to which the Company is a party or to which any
of the properties of the Company is subject that are required to be described in
the Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(n) The Company has all necessary consents, authorizations, approvals,
orders, certificates and permits of and from, and has made all declarations and
filings with, all federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its business in the
manner described in the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the Company.
(o) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 or Rule 462 under the Securities Act, complied as to form
when so filed in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder.
(p) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(q) There is no owner of any securities of the Company who has any
rights, not effectively satisfied or waived, to require registration of any
shares of capital stock of the Company in connection with the filing of the
Registration Statement or the sale of any shares thereunder.
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<PAGE> 5
(r) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition, financial or otherwise,
or the earnings, business or operations of the Company, except as described in
or contemplated by the Prospectus.
(s) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (collectively, "Environmental
Laws"), (ii) has received all permits, licenses or other approvals required of
it under applicable Environmental Laws to conduct its business and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the Company.
(t) To the best of the Company's knowledge, costs and liabilities
associated with its compliance with Environmental Laws as currently in effect
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on operating activities and
any potential liabilities to third parties) would not, singly or in the
aggregate, reasonably be expected to have a material adverse effect on the
Company.
(u) The Company owns or possesses adequate licenses or other rights to
use all patents, copyrights, trademarks, service marks, trade names, technology
and know-how necessary (in any material respect) to conduct its business in the
manner described in the Prospectus, the Company is not obligated to pay a
royalty, grant a license, or provide other consideration to any third party in
connection with its patents, copyrights, trademarks, service marks, trade names,
or technology other than pursuant to agreements with Baxter Healthcare
Corporation ("Baxter"), the Auckland Division Cancer Society of New Zealand,
Inc., Miles Inc. and Diamond Scientific Corporation, and as disclosed in the
Prospectus, and, except as disclosed in the Prospectus, the Company has not
received any notice of infringement or conflict with (and the Company does not
know of any infringement or conflict with) asserted rights of others with
respect to any patents, copyrights, trademarks, service marks, trade names,
technology or know-how which could reasonably be expected to result in any
material adverse effect upon the Company and, except as disclosed in the
Prospectus, the discoveries, inventions, products or processes of the Company
referred to in the Prospectus do not, to the best knowledge of the Company,
infringe or conflict with any right or patent of any third party, or any
discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Company which could
reasonably be expected to have a material adverse effect on the Company. Other
than Baxter and the U.S. Government as summarized in the Prospectus under the
caption "Research Grants," no third party, including any academic or
governmental organization, possesses rights to the Company's patents,
copyrights, trademarks, service marks, trade names, or technology which, if
exercised, could enable such third party to develop products competitive to
those of the Company or could have a material adverse effect on the ability of
the Company to conduct its business in the manner described in the Prospectus.
(v) The Company possesses all consents, approvals, orders,
certificates, authorizations and permits issued by and has made all declarations
and filings with, all appropriate federal, state or foreign governmental or
self-regulatory authorities and all courts and other tribunals necessary to
conduct its business and to own, lease, license and use its properties in the
manner described in the Prospectus, and the Company has not received any
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<PAGE> 6
notice of proceedings related to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of any unfavorable decision, ruling or finding, or failure to obtain or
file would result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company, except as
described in or contemplated by the Prospectus.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(x) No material labor dispute with the employees of the Company exists,
except as described in or contemplated by the Prospectus, or, to the best
knowledge of the Company, is imminent; and the Company is not aware of any
existing, threatened or imminent labor disturbance by the employees of any of
its principal suppliers, manufacturers or contractors that could result in any
material adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company.
(y) All outstanding shares of Common Stock, and all securities
convertible into or exercisable or exchangeable for Common Stock, with the
exception of ______ shares of Common Stock or securities convertible into or
exchangeable for Common Stock, are subject to valid, binding and enforceable
agreements (collectively, the "Lock-up Agreements") that restrict the holders
thereof from (1) offering, pledging, selling, contracting to sell, selling any
option or contract to purchase, purchasing any option or contract to sell,
granting any option, right, or warrant for the purchase of, or otherwise
transferring or disposing of, directly or indirectly, any shares of Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock, or (2) entering into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of Common Stock, whether any
such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise,
otherwise than (i) as a bona fide gift or gifts, (ii) by will or intestacy to
the holder's immediate family or to a trust the beneficiaries of which are
exclusively the holder and/or a member or members of the holder's immediate
family, (iii) as a distribution to limited partners or shareholders of the
holder, or (iv) with the prior written consent of Morgan Stanley & Co.
Incorporated; proved that a gift, transfer or distribution pursuant to clause
(i), (ii) or (iii) above shall be conditioned upon such donee, transferee or
distributee executing and delivering a copy of a Lock-up Agreement to Morgan
Stanley & Co. Incorporated and further that such holders will not make any
demand for or exercise any right with respect to, the registration of any shares
of Common Stock or any security convertible into or exercisable or exchangeable
for Common Stock prior to the expiration of 180 days after the date of the
Prospectus.
(z) The Company (i) has entered into enforceable agreements
(collectively, the "Option Agreements") with each holder of a currently
outstanding option issued under the Company's 1992 Stock Option Plan (restated
as the 1996 Equity Incentive Plan) (the "Option Plan") and each person who has
acquired shares of Common Stock pursuant to the exercise of any option granted
under the Option Plan that pursuant to the terms of the Option Agreements and
the Option Plan, none of such options or shares may be sold or otherwise
transferred or disposed of for a period of 180 days after the date of the
initial public offering of the Shares, (ii) has entered into that certain
Amended and Restated Investors' Rights Agreement dated April 1, 1996 (the
"Rights Agreement") pursuant to which each party thereto has agreed not to sell
or otherwise transfer or dispose of any Common Stock of the Company for a period
of 180 days after the effective date of the initial public offering
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<PAGE> 7
(other than to donees who agree to be similarly bound), and (iii) has imposed or
will impose prior to the effective date of the Registration Statement a
stop-transfer instruction with the Company's transfer agent in order to enforce
the foregoing lock-up provisions imposed pursuant to the Rights Agreement, the
Option Agreements and the Option Plan to the same extent as is required in the
Lock-up Agreements.
(aa) As of the date the Registration Statement becomes effective, the
Common Stock will be authorized for quotation on the Nasdaq National Market upon
official notice of issuance.
(bb) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida), relating to issuers doing
business with Cuba.
II.
The Company hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from the Company the respective number of Firm
Shares (subject to such adjustments to eliminate fractional shares as you may
determine) set forth in Schedule I hereto opposite the name of such Underwriter
at $_____ a share (the purchase price).
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company hereby agrees to
issue and sell to the Underwriters the Additional Shares, and the Underwriters
shall have a one-time right to purchase, severally and not jointly, up to
300,000 Additional Shares at the purchase price. Additional Shares may be
purchased as provided in Article IV hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or (2) enter into any swap or similar arrangement
that transfers, in whole or in part, the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise, other than (i) the Shares to be sold hereunder, (ii) any
shares of Common Stock sold by the Company upon the exercise of an option or
warrant or other right to acquire shares of the Company or the conversion of a
security outstanding on the date hereof described in the Prospectus or any
shares of Common Stock sold by the Company to Baxter upon achievement of certain
milestones pursuant to the Red Cell/Plasma Agreement as described in the
Prospectus, (iii) any options or other rights to purchase or acquire any shares
of Common Stock or any shares of Common Stock issuable upon exercise of such
options or other rights granted in connection with any compensatory arrangement
with a director, officer, employee, consultant or advisor, so long as such
person is otherwise subject to a Lock-Up Agreement, or (iv) any shares of
Common Stock or other right to acquire shares of the Company issued pursuant to
equipment or lease financing activities entered into in the ordinary course of
the Company's business, so long as each person or entity acquiring shares of
Common Stock or any
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<PAGE> 8
securities convertible into or exercisable or exchangeable for Common Stock is
otherwise subject to a Lock-Up Agreement.
III.
The Company is advised by you that the Underwriters propose to make a
public offering of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Company is
further advised by you that the Shares are to be offered to the public initially
at $_____ a share (the public offering price) and to certain dealers selected by
you at a price that represents a concession not in excess of $_____ a share
under the public offering price, and that any Underwriter may allow, and such
dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
IV.
Payment for the Firm Shares shall be made in Federal or other funds
immediately available in New York City against delivery of such Firm Shares for
the respective accounts of the several Underwriters, at 7:00 a.m., local time,
on __________ __, 1997, or at such other time on the same or such other date,
not later than __________ __, 1997, as shall be designated in writing by you.
The time and date of each such payment are hereinafter referred to as the
Closing Date.
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters, at 7:00 a.m., local time, on such date (which may be the same as
the Closing Date but shall in no event be earlier than the Closing Date nor
later than ten business days after the giving of the notice hereinafter referred
to) as shall be designated in a written notice from you to the Company of your
determination, on behalf of the Underwriters, to purchase a number, specified in
said notice, of Additional Shares, or on such other date, in any event not later
than __________ __, 1997 as shall be designated in writing by you. The time and
date of such payment are hereinafter referred to as the "Option Closing Date".
The notice of the determination to exercise the option to purchase Additional
Shares and of the Option Closing Date may be given at any time within 30 days
after the date of this Agreement.
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the purchase price therefor.
V.
The obligations of the Company and the several obligations of the
Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than the date hereof.
The several obligations of the Underwriters hereunder are subject to
the following further conditions:
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<PAGE> 9
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act, and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations, of the Company and its
subsidiaries, taken as a whole, from that set forth in the Registration
Statement that, in your judgment, is material and adverse and that makes it, in
your judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company, to the effect set forth in
clause (a)(i) above, and to the effect that the representations and warranties
of the Company contained in this Agreement are true and correct as of the
Closing Date and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
The officers signing and delivering such certificate may rely upon the
best of their knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion of Cooley
Godward LLP, counsel for the Company, dated the Closing Date, to the effect that
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in California and, to the knowledge of
such counsel, in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company;
(ii) to such counsel's knowledge the Company does not own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity;
(iii) the authorized capital stock of the Company conforms in
all material respects as to legal matters to the description thereof contained
in the Prospectus under the caption "Description of Capital Stock;"
(iv) the shares of Common Stock outstanding prior to the
issuance of the Shares to be sold by the Company have been duly authorized and
are validly issued, non-assessable and fully paid;
(v) the Shares to be sold by the Company have been duly
authorized, and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued and non-assessable, and to such counsel's
knowledge, fully paid, and the issuance of such Shares will not be subject to
any preemptive rights, or, to such counsel's knowledge, rights of first refusal
or similar rights;
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<PAGE> 10
(vi) the Company has corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by the Company. This Agreement has been duly
authorized, executed and delivered by the Company;
(vii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law, other than the securities or Blue
Sky laws of the various states and jurisdictions, or the certificate of
incorporation or bylaws of the Company or, to such counsel's knowledge, any
agreement or other instrument binding upon the Company that is material to the
Company, taken as a whole, or, to such counsel's knowledge, any judgment, order
or decree of any governmental body, agency or court having jurisdiction over the
Company, and no consent, approval, authorization or order of or qualification
with any governmental body or governmental agency is required for the
performance by the Company of its obligations under this Agreement, except such
as have been obtained under the Securities Act or may be required by the
securities or Blue Sky laws of the various states and jurisdictions in
connection with the offer and sale of the Shares;
(viii) the statements (1) in the Prospectus under the captions
"Business -- Alliance with Baxter" describing the Platelet Agreement, the Red
Cell/Plasma Agreement, the interim research funding agreements with Baxter and
the Series E Stock Purchase Agreement, "Business -- Equity Incentive Plans"
describing the Incentive Plan and the Purchase Plan, the fourth paragraph of
"Certain Transactions" describing the Transfer Agreement with HRI, "Description
of Capital Stock" and "Shares Eligible for Future Sale" and (2) in the
Registration Statement in Items 14 and 15, in each case insofar as such
statements constitute summaries of the legal conclusions or documents or
proceedings referred to therein, fairly present the information called for under
the Securities Act and the rules and regulations promulgated thereunder (the
"Rules") with respect to such legal conclusions, documents and proceedings and
fairly summarize the matters referred to therein required under the Securities
Act and Rules;
(ix) to such counsel's knowledge there is no legal, regulatory
or governmental proceeding pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the Company is
subject that are required by the Securities Act and Rules to be described in the
Registration Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required;
(x) the Company is not an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended;
(xi) to the knowledge of such counsel, there is no legal or
beneficial owner of any securities of the Company who has any rights, not
effectively satisfied or waived, to require registration of any shares of
capital stock of the Company in connection with the filing of the Registration
Statement;
(xii) to the knowledge of such counsel: (1) the Registration
Statement has become effective under the Securities Act, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Securities Act and nothing has come to such counsel's
attention to lead it to believe that such proceedings are threatened; and (2)
any required filing of the Prospectus and any supplement thereto pursuant to
Rule 424(b) under the Securities Act has been made in the manner and within the
time period required by such Rule 424(b);
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<PAGE> 11
(xiii) the Shares to be sold under this Agreement to the
Underwriters are duly authorized for quotation on the Nasdaq National Market;
and
(xiv) such counsel shall also state that (i) they believe that
the Registration Statement and the Prospectus (except for financial statements
and schedules, other financial data and statistical data derived therefrom, as
to which they need express no belief) complied as to form in all material
respects with the requirements of the Securities Act and the Rules and (ii) they
confirm that they have no reason to believe that (except for financial
statements and schedules, other financial data and statistical data derived
therefrom, as to which they need express no belief) the Registration Statement
as of its effective date, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that (except for financial
statements and schedules, other financial data and statistical data derived
therefrom, as to which they need express no belief) the Prospectus, as of the
date of the Prospectus and such date or dates as such opinion is delivered,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(d) You shall have received on the Closing Date an opinion of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters, dated the Closing Date, covering the matters referred to in
subparagraphs (v), the last sentence of subparagraph (vi), (viii) (but only as
to the statements in the Prospectus under "Description of Capital Stock"),
stating that such counsel has read the first four paragraphs and the sixth
paragraph of the portion of the Registration Statement and the Prospectus
entitled "Underwriters" (the "Underwriter Portion") and (xiv) of paragraph (c)
above and to the effect that the statements in the Underwriter Portion, insofar
as such statements constitute a summary of this Agreement, fairly present the
information called for with respect to such Agreement.
(e) You shall have received on the Closing Date an opinion of Medlen
and Carroll, intellectual property counsel for the Company, dated the Closing
Date, to the effect that:
(i) such counsel represents the Company in certain matters
relating to intellectual property, including patents, trade secrets and certain
trademark matters;
(ii) such counsel is familiar with the technology used by the
Company in its business and the manner of its use and has read the portions of
the Registration Statement and the Prospectus entitled "Risk Factors -- Patent
and License Uncertainties," "Risk Factors -- Risk of Product Liability" and
"Business -- Patents, Licenses, and Proprietary Rights" (collectively, the
"Intellectual Property Portion");
(iii) the Intellectual Property Portion contains accurate
descriptions of the Company's patent applications, issued and allowed patents,
and patents licensed to the Company and fairly summarizes the legal matters,
documents and proceedings relating thereto;
(iv) based upon a review of the third party rights made known
to counsel and discussions with Company scientific personnel, such counsel is
not aware of any valid United States or foreign patent, including but not
limited to those patents numbered __________, ___________ and ________ (which
includes certain patents assigned to Johnson & Johnson which were the subject of
a letter to Baxter, dated ____________), that is or would be infringed by the
activities of the Company in the manufacture, use or sale of any presently
proposed product, the technologies employed by the Company or the method of
their use in any presently proposed product, each as described in the
Prospectus;
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<PAGE> 12
(v) such counsel has reviewed United States Patent Number
5,399,719 and the claims made therein (the "719 Patent"), which 719 Patent is
owned by the Company, and we are familiar with the S-59 compound developed by
the Company and described in the Prospectus. To such counsel's knowledge, the
S-59 compound falls within the composition of matter claims of the 719 Patent;
(vi) such counsel has reviewed the Company's patent
applications filed in the United States and outside the United States (the
"Applications") and which Applications are described in the Intellectual
Property Portion and in the opinion of such counsel the Applications have been
properly prepared and filed on behalf of the Company, and are being diligently
pursued by the Company; the inventions described in the Applications are
assigned or licensed to the Company; to such counsel's knowledge, no other
entity or individual has any right or claim in any of the inventions,
Applications, or any patent to be issued therefrom, and in such counsel's
opinion each of the Applications discloses patentable subject matter;
(vii) such counsel is aware of no pending or threatened
judicial or governmental proceedings relating to patents or proprietary
information to which the Company is a party or of which any property of the
Company is subject and such counsel is not aware of any pending or threatened
action, suit or claim by others that the Company is infringing or otherwise
violating any patent rights of others, based upon review of the Applications
such counsel is not aware of any rights of third parties to any of the Company's
inventions described in the Applications, issued, approved or licensed patents
which could reasonably be expected to materially affect the ability of the
Company to conduct its business as described in the Prospectus, including the
commercialization of its products currently under development; and
(viii) such counsel has no reason to believe that the
information contained in the Intellectual Property Portion of the Registration
Statement or the Prospectus at the time it became effective contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that, at the Closing Date, the information contained in the Intellectual
Property Portion of the Prospectus or any amendment or supplement to the
Intellectual Property Portion of the Prospectus contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(f) You shall have received on the Closing Date an opinion of Buc &
Beardsley, special regulatory counsel to the Company, dated the Closing Date, to
the effect that:
(i) in connection with this offering, such counsel represents
the Company in certain matters relating to the United States Federal Food, Drug,
and Cosmetic Act (the "FFDC Act"), the Public Health Service Act (the "PHSA")
and related government regulatory matters;
(ii) such counsel has read the portions of the Registration
Statement and the Prospectus entitled "Risk Factors -- Government Regulation,"
"Business -- Government Regulation" and "Business -- Health Care Reimbursement
and Reform" (the "Regulatory Portion"), and in such counsel's opinion, the
Regulatory Portion, insofar as such statements constitute descriptions of the
FFDC Act and the PHSA, regulations are fair and accurate summaries of such
federal statutes, laws or regulations, are accurate and complete in all material
respects; and
(iii) such counsel has no reason to believe that the
information contained in the Regulatory Portion of the Registration Statement or
the Prospectus at the time it became effective contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make
-11-
<PAGE> 13
the statements therein not misleading or that, at the Closing Date, the
information contained in the Regulatory Portion of the Prospectus or any
amendment or supplement to the Regulatory Portion of the Prospectus contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
With respect to subparagraph (xiv) of paragraph (c) above, Cooley
Godward LLP and Wilson Sonsini Goodrich & Rosati, Professional Corporation, may
state that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments or
supplements thereto and review and discussion of the contents thereof, but are
without independent check or verification except as specified.
The opinion of Cooley Godward LLP described in paragraph (c) above,
the opinion of Medlen and Carroll described in paragraph (e) above and the
opinion of Buc & Beardsley described in paragraph (f) above shall each be
rendered to you at the request of the Company, and shall so state therein.
(g) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Ernst & Young LLP, independent
public accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(h) The Lock-up Agreements, as well as all other "lock-up" agreements
imposed by the Option Agreements and the Rights Agreement between you and
certain stockholders, officers and directors of the Company relating to sales of
shares of Common Stock of the Company or any securities convertible into or
exercisable or exchangeable for such Common Stock, delivered to you on or before
the date hereof, shall be in full force and effect on the Closing Date.
(i) The shares of Common Stock of the Company shall have received
approval for listing, upon official notice of issuance, on the Nasdaq National
Market.
(j) The Company shall have complied with the provisions of paragraph
(a) of Section VI hereof with respect to the furnishing of Prospectuses on the
business day next succeeding the date of this Agreement in such quantities as
you may reasonably request.
(k) Simultaneously with the Closing of the sale of the Firm Shares
Baxter shall have purchased the shares of Common Stock of the Company pursuant
to the Baxter Private Placement as defined and described in the Prospectus.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed in compliance with the provisions
hereof only if Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Underwriters, shall be reasonably satisfied that they comply in
form and scope.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares, other matters related to the issuance of the Additional Shares and an
opinion or opinions of Cooley Godward LLP, Medlen and Carroll and Buc &
Beardsley in form and substance reasonably satisfactory to Wilson Sonsini
Goodrich & Rosati, Professional Corporation, counsel for the Underwriters.
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<PAGE> 14
VI.
In further consideration of the agreements of the Underwriters herein
contained, the Company covenants as follows:
(a) To furnish to you, without charge, three (3) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and, during the period mentioned in paragraph (c) below, as
many copies of the Prospectus and any supplements and amendments thereto or to
the Registration Statement as you may reasonably request. In the case of the
Prospectus, to furnish copies of the Prospectus in New York City, prior to 5:00
p.m., on the business day following the date of this Agreement, in such
quantities as you reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and to file no such proposed amendment or supplement to which you
reasonably object.
(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for the Underwriters, the Prospectus is
required by law to be delivered in connection with sales by an Underwriter or
dealer, any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of your counsel, it is
necessary to amend or supplement the Prospectus to comply with law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish to
the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the Prospectus,
as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request and to pay all expenses (including reasonable fees and disbursements of
counsel) in connection with such qualification and in connection with any review
of the offering of the Shares by the National Association of Securities Dealers,
Inc.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earnings statement covering the twelve-month
period ending December 31, 1997 that satisfies the provisions of Section 11(a)
of the Securities Act and the Rules (including Rule 158).
(f) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its stockholders and (ii) all reports, financial statements and proxy
or information statements filed by the Company with the Commission or any
national securities exchange.
(g) The Company will apply the proceeds from the sale of the Shares
substantially as set forth under in "Use of Proceeds" in the Prospectus.
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<PAGE> 15
(h) The Company will use its best efforts to obtain and its reasonable
best efforts maintain in effect the quotation of the Shares on the Nasdaq
National Market and will take all necessary steps to cause the Shares to be
included on the Nasdaq National Market as promptly as practicable and to
maintain such inclusion for a period of three years after the date hereof or
until such earlier date as the Shares shall be listed for regular trading
privileges on the Nasdaq National Market or another national securities exchange
or trading system approved by you, which approval shall not be unreasonably
withheld.
(i) The Company will file with the Commission such reports on Form SR
as may be required pursuant to Rule 463 under the Securities Act.
(j) The Company will comply with all registration, filing and reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which may from time to time be applicable to the Company.
(k) The Company will comply with all provisions of all undertakings
contained in the Registration Statement, Part II, Item 17.
(l) Prior to the Closing Date or the Option Closing Date, as the case
may be, the Company will not, directly or indirectly, issue any press release or
other public communication directly or indirectly and will not hold any press
conference with respect to the Company, or its financial condition, results of
operations, business, properties, assets or prospects, or this offering, without
your prior written consent (which consent will not be unreasonably withheld).
(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you and the
Company, responding to or commenting on such rumor, publication or event.
(n) The Company agrees: (i) to enforce the terms of the lock-up
agreements contained in the Option Agreements and the Rights Agreement to the
same extent as required in the Lock-up Agreements, (ii) issue stop-transfer
instructions to the transfer agent for the Common Stock with respect to any
transaction or contemplated transaction that would constitute a breach of or
default under the applicable Lock-up Agreement, the Rights Agreement, or any
agreement executed pursuant to either Option Plan, and (iii) upon written
request of Morgan Stanley & Co. Incorporated, to release from the Lock-up
Agreements, or the lock-up agreements contained in the Rights Agreement or any
agreement executed pursuant to either Option Plan those shares of Common Stock
held by those holders set forth in such request. In addition, except with the
prior written consent of Morgan Stanley & Co. Incorporated, the Company agrees
(i) not to amend or terminate, or waive any right under, any Lock-up Agreement,
the Rights Agreement or any agreement executed pursuant to either Option Plan or
take any other action that would directly or indirectly have the same effect as
an amendment or termination, or waiver of any right under, any Lock-up
Agreement, the Rights Agreement or any agreement executed pursuant to either
Option Plan that would permit any holder of shares of Common Stock, or
securities convertible into or exercisable or exchangeable for Common Stock, to
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, make any short sale of, grant any
option, right, or warrant for the purchase of, enter into any swap or similar
agreement that transfers, in whole or in part, the economic risk of ownership of
Common Stock, or otherwise transfer or dispose of,
-14-
<PAGE> 16
directly or indirectly, any of such shares of Common Stock or other securities
prior to the expiration of 180 days after the date of the Prospectus, (ii) not
to release any such stop-transfer instruction as described in (ii) above prior
to the expiration of 180 days after the date of the Prospectus, and (iii) not to
consent to any sale, short sale, grant of an option for the purchase of, or
other disposition or transfer of shares of Common Stock, or securities
convertible into or exercisable or exchangeable for Common Stock, subject to a
Lock-up Agreement, the Rights Agreement or any agreement executed pursuant to
either Option Plan.
(o) The Company will place a restrictive legend on any shares of Common
Stock acquired pursuant to the exercise, after the date hereof and prior to the
expiration of the 180-day period after the date of the initial public offering
of the Shares, of any option granted under either of the Option Plans or
pursuant to the exercise of any warrant, which legend shall restrict the
transfer of such shares prior to the expiration of such 180-day period. In
addition, the Company agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated, it will not release any stockholder, option holder
or warrant holder from the market standoff provision imposed by the Company
pursuant to the terms of either Option Plan, the Rights Agreement or earlier
than 180 days after the date of the initial public offering of the Shares.
VII.
The Company agrees to pay all costs and expenses incident to the
performance of the obligations of the Company under this Agreement, including,
but not limited to, all expenses incident to (i) the preparation and filing of
the Registration Statement (including all exhibits thereto) and the Prospectus
and all amendments and supplements thereto, (ii) the preparation, issuance and
delivery of the Shares, including any transfer taxes payable in connection with
the transfer and sale of the Shares to the Underwriters, (iii) the fees and
disbursements of the Company's counsel and accountants, (iv) the qualification
of the Shares under state securities or Blue Sky laws in accordance with the
provisions of paragraph (d) of Article VI hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in connection
therewith and in connection with the preparation of any Blue Sky or Legal
Investment Memoranda, (v) the printing and delivery to the Underwriters, in
quantities as hereinabove stated, of copies of the Registration Statement
(including all exhibits thereto) and all amendments thereto and of each
preliminary prospectus and the Prospectus and any amendments or supplements
thereto, (vi) the printing and delivery to the Underwriters of copies of this
Agreement or any Blue Sky or Legal Investment Memoranda, (vii) the filing fees
and expenses, if any, incurred with respect to any filing with the National
Association of Securities Dealers, Inc., made in connection with the offering of
the Shares, (viii) any expenses incurred by the Company in connection with a
"road show" presentation to potential investors and (ix) the listing of the
Common Stock on the Nasdaq National Market.
VIII.
The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, or is under
common control with, or is controlled by, any Underwriter, from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
-15-
<PAGE> 17
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein; provided, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any Underwriter or any person controlling such Underwriter, from whom
the person asserting any such losses, claims, damages or liabilities purchased
Shares, if a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the directors of the Company, the officers of the
Company who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to any of the two preceding paragraphs, such person (the "Indemnified
Party") shall promptly notify the person against whom such indemnity may be
sought (the "Indemnifying Party") in writing and the Indemnifying Party, upon
request of the Indemnified Party, shall retain counsel reasonably satisfactory
to the Indemnified Party to represent the Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Party
shall not, in respect of the legal expenses of any Indemnified Party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, and (b) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either such
Section , and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of Underwriters, such firm shall be designated in writing by
Morgan Stanley & Co. Incorporated. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the Company, such
firm shall be designated in writing by the Company. The Indemnifying Party shall
not be liable for any
-16-
<PAGE> 18
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an Indemnified Party shall have requested
by certified mail addressed to an Indemnifying Party to reimburse the
Indemnified Party for the reasonable fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
Indemnifying Party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such Indemnifying Party of the
aforesaid request and (ii) such Indemnifying Party shall not have reimbursed the
Indemnified Party in accordance with such request prior to the date of such
settlement. No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Party is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability on claims that are the subject matter of such
proceeding.
If the indemnification provided for in the first or second paragraph of
this Article VIII is unavailable to an Indemnified Party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each Indemnifying Party under such paragraph, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Indemnifying Party or parties on the one hand and the
Indemnified Party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Indemnifying Party or parties on the one hand and of the Indemnified Party
or parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective proportions
as the net proceeds from the offering of the Shares (before deducting expenses)
received by the Company and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover of the Prospectus, bear to the aggregate public offering price of the
Shares. The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Article VIII are several in proportion to the respective number
of Shares they have purchased hereunder, and not joint.
The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Article VIII were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article VIII, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such
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<PAGE> 19
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Article VIII are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any Indemnified Party at law or in equity.
The indemnity and contribution provisions contained in this Article
VIII and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter, or the Company,
its officers or directors or any person controlling the Company and (iii)
acceptance of and payment for any of the Shares.
IX.
This Agreement shall be subject to termination by notice given by you
to the Company, if (a) after the execution and delivery of this Agreement and
prior to the Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State authorities, or
(iv) there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your sole
judgment, is material and adverse and (b) in the case of any of the events
specified in clauses (a)(i) through (iv), such event singly or together with any
other such event makes it, in your sole judgment, impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus.
X.
This Agreement shall become effective upon execution and delivery
hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided, however, that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to Article
II be increased pursuant to this Article X by an amount in excess of one-ninth
of such number of Shares without the written consent of such Underwriter. If, on
the Closing Date or the Option Closing Date, as the case may be, any Underwriter
or Underwriters shall fail or refuse to purchase Shares and the aggregate number
of Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to you and the Company for the purchase of such Shares are not made
within 36 hours after such default, this Agreement shall
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<PAGE> 20
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case either you or the Company shall have the right to
postpone the Closing Date or the Option Closing Date, as the case may be, but in
no event for longer than seven days, in order that the required changes, if any,
in the Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or because
for any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
This Agreement may be signed in two or more counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
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<PAGE> 21
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York.
Very truly yours,
Cerus Corporation
By
_____________________________________________
Stephen T. Isaacs,
President and Chief Executive Officer
Accepted, __________ __, 1997
Morgan Stanley & Co. Incorporated
Alex. Brown & Sons Incorporated
Acting severally on behalf of themselves and the
several Underwriters named herein.
By: Morgan Stanley & Co. Incorporated
By
_____________________________________
Katina Dorton,
Vice President
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<PAGE> 22
SCHEDULE I
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
- ------------------------------------------------ ---------------------
Morgan Stanley & Co. Incorporated...............
Alex. Brown & Sons Incorporated.................
-------------------
Total................
-------------------
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CERUS DELAWARE CORPORATION
Stephen T. Isaacs and Lori L. Roll hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of Cerus Delaware Corporation, a Delaware Corporation,
incorporated in the State of Delaware on July 31, 1996.
TWO: The Amended and Restated Certificate of Incorporation of said
corporation shall be amended and restated to read in full as follows:
I.
The name of this Corporation is Cerus Delaware Corporation.
II.
The address of the registered office of the Corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent, and the name of
the registered agent of the Corporation in the State of Delaware at such address
is Incorporating Services, Ltd.
III.
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is fifty-five million
(55,000,000) shares. Fifty million (50,000,000) shares shall be Common Stock,
each having a par value of one-tenth of one cent ($.001). Five million
(5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
1.
<PAGE> 2
B. Seven Hundred Sixty-One Thousand Seventy-Nine (761,079) of the
authorized shares of Preferred Stock are hereby designated "Series A Preferred
Stock" (the "Series A Preferred"), Three Hundred Five Thousand Four Hundred
Sixty-One (305,461) shares of the authorized shares of Preferred Stock are
hereby designated "Series B Preferred Stock" (the "Series B Preferred"), One
Million One Hundred Forty-Seven Thousand Four Hundred Forty-Nine (1,147,449)
shares of the authorized shares of Preferred Stock are hereby designated "Series
C Preferred Stock" (the "Series C Preferred"), Six Hundred Five Thousand
(605,000) shares of the authorized shares of Preferred Stock are hereby
designated Series D Preferred Stock (the "Series D Preferred") and Three Hundred
Eighty Thousand Nine Hundred Fifty-Three (380,953) shares of the authorized
shares of Preferred Stock are hereby designated "Series E Preferred Stock" (the
"Series E Preferred").
C. The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred, the Series B Preferred, the Series C
Preferred, the Series D Preferred and the Series E Preferred (hereinafter the
Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D
Preferred and the Series E Preferred shall be referred to collectively as the
"Preferred Stock") are as follows:
1. DIVIDEND RIGHTS.
a. Holders of Preferred Stock, in preference to the
holders of any Common Stock, shall be entitled to receive, when and if declared
by the Board of Directors, but only out of funds that are legally available
therefor, cash dividends at the rate of $0.46 per annum on each outstanding
share of Series A Preferred, $0.61 per annum on each outstanding share of Series
B Preferred, $0.96 per annum on each outstanding share of Series C Preferred,
$1.26 per annum on each outstanding share of Series D Preferred and $1.89 per
annum on each outstanding share of Series E Preferred. Such dividends shall be
non-cumulative, and no right shall accrue to the holders of Preferred Stock by
reason of the fact that dividends on such shares are not declared or paid in any
prior year.
b. So long as any shares of Preferred Stock shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on any Common Stock, nor
shall any shares of any class of stock of the Company be purchased, redeemed, or
otherwise acquired for value by the Company or any subsidiary of the Company,
unless a corresponding dividend, distribution or redemption has been or is
simultaneously declared or made on the Preferred Stock and all declared but
unpaid dividends on the shares of outstanding Preferred Stock shall have been
paid or a sum sufficient for the payment thereof shall have been reserved
therefor. The provisions of this Section 1(b) shall not, however, apply to (i) a
dividend payable solely in stock, (ii) the acquisition of shares of any Common
Stock in exchange for shares of any Common Stock, (iii) the repurchase of shares
of Common Stock held by employees, officers, directors, consultants or other
persons performing services for the Company or any wholly-owned subsidiary that
are subject to restrictive stock purchase agreements under which the Corporation
has the option to repurchase such shares at cost upon the occurrence of certain
events, such as the termination of employment; or (iv) any repurchase of any
outstanding securities of the Company that is approved by not less than four
members of the Company's
2.
<PAGE> 3
Board of Directors. The holders of the Preferred Stock expressly waive their
rights, if any, as described in California Corporations Code Sections 503 and
506 as they relate to repurchase of shares upon termination of employment.
c. Subject to the foregoing and to any further
limitations set forth herein, the Board of Directors may declare, out of any
funds legally available therefor, dividends upon the then outstanding shares of
any Common Stock; provided, however, that if any cash dividend or other
distribution is declared by the Board of Directors to be paid on the Common
Stock, then an additional dividend shall be paid at the same time to the holders
of the outstanding Preferred Stock at a rate per share (based upon the number of
shares of Common Stock into which the outstanding Preferred Stock is
convertible) equal to the rate at which cash dividends or other distributions
are paid or granted with respect to the Common Stock.
2. VOTING RIGHTS.
a. Except as otherwise provided herein or as required
by law, the shares of the Preferred Stock shall be voted equally with the shares
of the Common Stock of the Company and not as a separate class, at any annual or
special meeting of shareholders of the Company, and may act by written consent
in the same manner as the Common Stock, in either case upon the following basis:
each holder of shares of the Preferred Stock shall be entitled to such number of
votes as shall be equal to the whole number of shares of Common Stock into which
such holder's aggregate number of shares of Preferred Stock are convertible
(pursuant to Section 5 hereof) immediately after the close of business on the
record date fixed for such meeting or the effective date of such written
consent.
b. In addition to any other vote or consent required
herein or by law, the consent of the holders of at least two-thirds (2/3) of the
outstanding Preferred Stock voting together as a separate class, voting in
person or by proxy, either in writing without a meeting, or by a vote at any
meeting called for the purpose, shall be necessary for effecting or validating
the following actions:
(1) Any amendment, alteration, or repeal of
any provision of the Amended and Restated Articles of Incorporation or the
Bylaws of the Company (including any filing of a Certificate of Determination),
that affects adversely the voting powers, preferences, or other special rights
or qualifications, limitations, or restrictions of the Preferred Stock;
(2) Any creation of or any increase, whether
by reclassification or otherwise, in the authorized amount of any class or
series of equity securities of the Company ranking on a parity with or prior to,
or convertible or exercisable into a class or series ranking on a parity with or
prior to, the Preferred Stock in right of liquidation preference, voting or
dividends;
(3) Any agreement to encumber (except in
connection with a financing in the ordinary course of business for other than
equity financing purposes), sell,
3.
<PAGE> 4
lease or otherwise dispose of all or substantially all of the assets, property
or business of the Company, or to merge or consolidate the Company with any
person, or permit any other person to merge into it, or any other
reorganization, transaction or series of transactions pursuant to which the
holders of the Company's outstanding voting securities immediately preceding
such merger, consolidation or other transaction or series of transactions fail
to hold equity securities representing a majority of the voting power of the
surviving entity immediately following such consolidation, merger or other
transaction or series of transactions;
(4) Any voluntary liquidation or dissolution of the
Company (as defined in Section 3(c) hereof); and
(5) Any redemption of, or payment of dividends with
respect to, Common Stock, other than a repurchase of Common Stock pursuant to
the exercise of any contractual or other legal rights of first refusal upon
termination of employment or a consulting arrangement or repurchase in
settlement of shareholder disputes; provided that this subparagraph (v) shall
not apply to any redemption of Preferred Stock pursuant to Section 4 hereof, or
any repurchase of any outstanding securities of the Company that is approved by
not less than four members of the Company's Board of Directors.
3. LIQUIDATION RIGHTS.
a. Upon any liquidation, dissolution, or winding up
of the Company, whether voluntary or involuntary, before any distribution or
payment of the assets of the Company shall be made to the holders of any Common
Stock, the holders of Preferred Stock shall be entitled to be paid out of the
assets of the Company an amount equal to the sum of (i) $3.85 plus all declared
but unpaid dividends on such shares to the date of such payment for each share
of Series A Preferred outstanding, (ii) $5.075 plus all declared but unpaid
dividends on such shares to the date of such payment for each share of Series B
Preferred outstanding, (iii) $8.00 plus all declared but unpaid dividends on
such shares to the date of such payment for each share of Series C Preferred
outstanding, (iv) $10.50 plus all declared but unpaid dividends on such shares
to the date of such payment for each share of Series D Preferred outstanding,
and (v) $15.75 plus all declared but unpaid dividends on such shares to the date
of such payment for each share of Series E Preferred outstanding, respectively.
If, upon any liquidation, distribution, or winding up, the assets of the Company
shall be insufficient to make payment in full under this Section 3(a) to all
holders of Preferred Stock, then such assets shall be distributed among the
holders of Preferred Stock at the time outstanding, ratably in proportion to the
full stated amounts to which they would otherwise be respectively entitled under
this Section 3(a).
b. After the payment of the full liquidation
preference of the Preferred Stock as set forth in Section 3(a) above, the
holders of the Common Stock and the holders of the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred shall receive the remaining
assets on a pro rata basis (as if the shares of Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred had been converted to
shares of Common Stock as of the liquidation, dissolution or winding up of the
Company);
4.
<PAGE> 5
provided, however, that the aggregate distributions made to the holders of
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred pursuant to Section 3(a) and this Section 3(b) shall not exceed $15.40
per share of Series A Preferred, $20.30 per share for each share of Series B
Preferred, $32.00 per share for each share of Series C Preferred, and $31.50 per
share for each share of Series D Preferred, respectively. Holders of series of
Preferred Stock created after the creation of the Series D Preferred will be
entitled to the full liquidation preference set forth in Section 3(a) above or
to convert their shares as provided in Section 5 below. Upon conversion of
shares as provided in Section 5, the holders of the Common Stock arising from
such converted shares will be entitled to receive such remaining assets on a pro
rata basis without being subject to the limitations set forth above in this
Section 3(b).
c. The following events shall be considered a liquidation,
dissolution or winding up under this Section 3:
(1) any consolidation or merger of the Company
with or into any other corporation or other entity or person, or any other
corporate reorganization or other transaction or series of transactions pursuant
to which the holders of the outstanding voting securities of the Company
immediately prior to such consolidation, merger, reorganization or other
transaction or series of transactions fail to hold equity securities
representing a majority of the voting power of the surviving entity immediately
following such consolidation, merger or reorganization or any transaction or
series of related transactions; or
(2) a sale, lease or other disposition of all
or substantially all of the assets of the Company.
d. Any securities to be delivered to the holders of
the Preferred Stock or Common Stock pursuant to a transaction treated as a
liquidation shall be valued as follows:
(1) Securities not subject to investment
letter or other similar restrictions on free marketability:
(i) If traded on a national
securities exchange or the National Market System of the National Association of
Securities Dealers, Inc. (the "NMS"), the value shall be deemed to be the
average of the security's closing prices on such exchange or the NMS over the
thirty (30) day period ending three (3) days prior to the closing;
(ii) If traded over-the-counter
(but not on the NMS), the value shall be deemed to be the average of the mean of
the closing bid and ask prices over the thirty (30) day period ending three (3)
days prior to the closing; or
(iii) If there is no active
public market, the value shall be the fair market value thereof, as mutually
determined by the Corporation and the holders
5.
<PAGE> 6
of not less than fifty percent (50%) of the outstanding Preferred Stock, voting
together as a single class.
(2) The method of valuation of securities
subject to investment letter or other restrictions on free marketability shall
be to make an appropriate discount from the market value determined as above in
Sections 3(e)(i)(1), (2) or (3) to reflect the approximate fair market value
thereof, as mutually determined by the Corporation and the holders of not less
than fifty percent (50%) of the outstanding Preferred Stock, voting together as
a single class.
4. REDEMPTION.
The Company shall not have any right to require
redemption of the Preferred Stock, nor shall any holder of Preferred Stock be
entitled to require redemption of Preferred Stock.
5. CONVERSION RIGHTS.
The holders of the Preferred Stock shall have the
following rights with respect to the conversion of the Preferred Stock into
shares of Common Stock:
a. OPTIONAL CONVERSION. Subject to and in compliance
with the provisions of this Section 5, any shares of the Preferred Stock may, at
the option of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of Common Stock to
which a holder of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, or Series E Preferred shall be entitled upon conversion
shall be the product obtained by multiplying, as the case may be, the "Series A
Conversion Rate," the "Series B Conversion Rate," the "Series C Conversion
Rate," the "Series D Conversion Rate," or the "Series E Conversion Rate" then in
effect (determined as provided in Section 5(b)) by the number of shares of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
or Series E Preferred being converted.
b. SERIES A, SERIES B, SERIES C, SERIES D AND SERIES
E CONVERSION RATES. The conversion rate in effect at any time for conversion of
the Series A Preferred (the "Series A Conversion Rate") shall be the quotient
obtained by dividing $3.85 by the "Series A Conversion Price," calculated as
provided in Section 5(c), the conversion rate in effect at any time for
conversion of the Series B Preferred (the "Series B Conversion Rate") shall be
the quotient obtained by dividing $5.075 by the "Series B Conversion Price,"
calculated as provided in Section 5(c), the conversion rate in effect at any
time for conversion of the Series C Preferred (the "Series C Conversion Rate")
shall be the quotient obtained by dividing $8.00 by the "Series C Conversion
Price," calculated as provided in Section 5(c), the conversion rate in effect at
any time for conversion of the Series D Preferred (the "Series D Conversion
Rate") shall be the quotient obtained by dividing $10.50 by the "Series D
Conversion Price," calculated as provided in Section 5(c), and the conversion
rate in effect at any time for conversion of the Series E Preferred (the "Series
E
6.
<PAGE> 7
Conversion Rate") shall be the quotient obtained by dividing $15.75 by the
"Series E Conversion Price," calculated as provided in Section 5(c).
c. CONVERSION PRICE. The conversion price for the
Series A Preferred shall initially be $3.85 (the "Series A Conversion Price"),
the conversion price of the Series B Preferred shall initially be $5.075 (the
"Series B Conversion Price"), the conversion price of the Series C Preferred
shall initially be $8.00 (the "Series C Conversion Price"), the conversion price
of the Series D Preferred shall initially be $10.50 (the "Series D Conversion
Price") and the conversion price of the Series E Preferred shall initially be
$15.75 (the "Series E Conversion Price"). Such initial Conversion Price for each
series of Preferred Stock shall be adjusted from time to time in accordance with
this Section 5. All references to the Conversion Price herein shall mean the
Conversion Price as so adjusted. As used hereinafter, the term "Conversion
Price" shall refer to the Conversion Price for the Series A Preferred, the
Series B Preferred, the Series C Preferred, the Series D Preferred, or the
Series E Preferred, as applicable.
d. MECHANICS OF CONVERSION. Each holder of Preferred
Stock who desires to convert the same into shares of Common Stock pursuant to
this Section 5 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Preferred
Stock, and shall give written notice to the Company at such office that such
holder elects to convert the same. Such notice shall state the number of shares
and the series of Preferred Stock being converted and the name or names in which
the certificate or certificates for shares of Common Stock are to be issued.
Thereupon, the Company shall promptly issue and deliver at such office to such
holder a certificate or certificates for the number of shares of Common Stock to
which such holder is entitled and shall promptly pay in cash or, to the extent
sufficient funds are not then legally available therefor, in Common Stock (at
the Common Stock's fair market value determined by the Board of Directors as of
the date of such conversion), any declared and unpaid dividends on the shares of
Preferred Stock being converted. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the certificates representing the shares of Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder of
such shares of Common Stock on such date. If the conversion is in connection
with the underwritten offering of securities registered pursuant to the
Securities Act of 1933, the conversion may, at the option of any holder
tendering Preferred Stock for conversion, be conditioned upon the closing with
the underwriter of the sale of securities pursuant to such offering, in which
event the persons to receive the Common Stock issuable upon such conversion of
the Preferred Stock shall not be deemed to have converted such Preferred Stock
until immediately prior to the closing of such sale of securities.
e. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If
the Company shall at any time or from time to time after the date that the first
share of Preferred Stock is issued (the "Original Issue Date") fix a record date
for the effectuation of a split or subdivision of the outstanding Common Stock,
the Conversion Price for the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred
7.
<PAGE> 8
in effect immediately before that subdivision shall be proportionately
decreased. Conversely, if the Company shall at any time or from time to time
after the Original Issue Date combine the outstanding shares of Common Stock
into a smaller number of shares, the Conversion Price for the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Section 5(e) shall become
effective at the close of business on the date the split, subdivision or
combination becomes effective.
f. ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND
DISTRIBUTIONS. If the Company at any time or from time to time after the
Original Issue Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, in each such event the Conversion
Price for the Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred and Series E Preferred that is then in effect shall be decreased as
of the time of such issuance or, in the event such record date is fixed, as of
the close of business on such record date, by multiplying the Conversion Price
then in effect with respect to each such series of Preferred Stock by a fraction
(i) the numerator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (ii) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Conversion Price shall
be adjusted pursuant to this Section 5(f) to reflect the actual payment of such
dividend or distribution or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock.
g. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS.
If the Company at any time or from time to time after the Original Issue Date
makes or fixes a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, in each such event for purposes
of this subsection 5(g), provision shall be made so that the holders of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount of other
securities of the Company which they would have received had their Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred been converted into Common Stock as of the record date fixed for the
determination of the holders of Common Stock of the Company entitled to receive
such distribution and had they thereafter, during the period from the date of
such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 5 with respect to
the rights of the holders of the Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred, or Series E Preferred or with respect to such
other securities by their terms.
8.
<PAGE> 9
h. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time after the Original Issue Date,
the Common Stock issuable upon the conversion of the Series A Preferred, Series
B Preferred, Series C Preferred, Series D Preferred, or Series E Preferred is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section 5
or in Section 3), in any such event each holder of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall
have the right thereafter to convert such stock into the kind and amount of
stock and other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of shares of
Common Stock into which such shares of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred could have been
converted immediately prior to or as of such recapitalization, reclassification
or change, all subject to further adjustment as provided herein or with respect
to such other securities or property by the terms thereof. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred, or Series E
Preferred after such recapitalization, reclassification or change to the end
that the provisions of this Section 5 (including adjustment of the Conversion
Price then in effect and the number of shares issuable upon conversion of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred) shall be applicable after that event and be as nearly
equivalent as practicable.
i. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES
OF ASSETS. If at any time or from time to time after the Original Issue Date,
there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 5 or in Section
3), as a part of such capital reorganization, provision shall be made so that
the holders of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred shall thereafter be entitled to
receive upon conversion of the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred the number of shares of
stock or other securities or property of the Company or otherwise to which a
holder of the number of shares of Common Stock deliverable upon conversion would
have been entitled on such capital reorganization, subject to adjustment in
respect of such stock or securities by the terms thereof. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred after the capital reorganization to the end that the provisions of
this Section 5 (including adjustment of the Conversion Price then in effect and
the number of shares issuable upon conversion of the Series A Preferred, Series
B Preferred, Series C Preferred, Series D Preferred and Series E Preferred)
shall be applicable after that event and be as nearly equivalent as practicable.
9.
<PAGE> 10
j. SALE OF SHARES BELOW CONVERSION PRICE.
(i) If at any time or from time to time after
the Original Issue Date, the Company issues or sells, or is deemed by the
express provisions of this subsection (j) to have issued or sold, Additional
Shares of Common Stock (as hereinafter defined), other than as a dividend or
other distribution on any class of stock as provided in Section 5(f) above, and
other than a subdivision or combination of shares of Common Stock as provided in
Section 5(e) above, for an Effective Price (as hereinafter defined) less than
the then effective Conversion Price for the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, or Series E Preferred, then
and in each such case the then existing Conversion Price for each such series of
Preferred Stock for which the Effective Price is less than the Conversion Price
shall be reduced, as of the opening of business on the date of such issue or
sale, to a price determined by multiplying the Conversion Price for such series
by a fraction (1) the numerator of which shall be (A) the number of shares of
Common Stock deemed outstanding (as defined in the following sentence) at the
close of business on the day preceding the date of such issue or sale, plus (B)
the number of shares of Common Stock which the aggregate consideration received
(as defined in subsection (j)(ii)) by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price, and (2) the denominator of which shall be the number of shares of Common
Stock deemed outstanding (as defined below) at the close of business on the date
of such issue. For the purposes of the preceding sentence, all outstanding
shares of Common Stock and all shares of Common Stock issuable upon conversion
of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred or upon exercise of warrants (excluding any
warrants as to which the exercise price then exceeds the Effective Price for
such Additional Shares of Common Stock) and conversion of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred subject to such warrants that are outstanding as of the close of
business on the day preceding the date of issue or sale of Additional Shares of
Common Stock shall be deemed outstanding.
(ii) For the purpose of making any adjustment
required under this Section 5(j), the consideration received by the Company for
any issue or sale of securities shall (1) to the extent it consists of cash, be
computed at the net amount of cash received by the Company after deduction of
any underwriting or similar commissions, compensation or concessions paid or
allowed by the Company in connection with such issue or sale but without
deduction of any expenses payable by the Company, (2) to the extent it consists
of property other than cash, be computed at the fair value of that property as
determined in good faith by the Board of Directors, and (3) if Additional Shares
of Common Stock, Convertible Securities (as hereinafter defined) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of the Company for a consideration which covers both, be computed as the
portion of the consideration so received that may be reasonably determined in
good faith by the Board of Directors to be allocable to such Additional Shares
of Common Stock, Convertible Securities or rights or options.
10.
<PAGE> 11
(iii) For the purpose of the adjustment
required under this Section 5(j), if the Company issues or sells any rights or
options for the purchase of, or stock or other securities then convertible into,
Additional Shares of Common Stock (such convertible stock or securities being
herein referred to as "Convertible Securities") and if the Effective Price of
such Additional Shares of Common Stock is less than the Conversion Price then in
effect with respect to any series of Preferred Stock, in each case the Company
shall be deemed to have issued at the time of the issuance of such rights or
options or Convertible Securities the number of Additional Shares of Common
Stock issuable upon exercise or conversion thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the issuance of
such rights or options or Convertible Securities, plus, in the case of such
rights or options, the amounts of consideration, if any, payable to the Company
upon the exercise of such rights or options, plus, in the case of Convertible
Securities, the amounts of consideration, if any, payable to the Company (other
than by cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion thereof; provided further that if the amount of
consideration payable to the Company upon the exercise or conversion of rights,
options or Convertible Securities is reduced over time or on the occurrence or
non-occurrence of specified events other than by reason of antidilution
adjustments, the Effective Price shall be recalculated using the figure to which
such amount of consideration is reduced; provided further that if the amount of
consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities is subsequently increased, the
Effective Price shall be again recalculated using the increased amount of
consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities. No further adjustment of the
Conversion Price, as adjusted upon the issuance of such rights, options or
Convertible Securities, shall be made as a result of the actual issuance of
Additional Shares of Common Stock on the exercise of any such rights or options
or the conversion of any such Convertible Securities. If any such rights or
options or the conversion privilege represented by any such Convertible
Securities shall expire without having been exercised, the Conversion Price as
adjusted upon the issuance of such rights, options or Convertible Securities
shall be readjusted to the Conversion Price which would have been in effect had
an adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any, actually
issued or sold on the exercise of such rights or options or rights of conversion
of such Convertible Securities, and such Additional Shares of Common Stock, if
any, were issued or sold for the consideration actually received by the Company
upon such exercise, plus the consideration, if any, actually received by the
Company for the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted, plus the consideration, if any,
actually received by the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) on the conversion of such
Convertible Securities, provided that such readjustment shall not apply to prior
conversions of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred.
(iv) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued by the Company, whether or not
subsequently reacquired or
11.
<PAGE> 12
retired by the Company, other than (1) shares of Common Stock issued upon
conversion of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred; (2) shares of Common Stock (and/or
options, warrants or other Common Stock purchase rights, and the Common Stock
issued pursuant to such options, warrants and other rights) issued or to be
issued to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements not to exceed an aggregate of 600,000 shares of Common Stock
as such number may be increased from time to time by the Company's Board of
Directors with the approval of at least four members of the Company's Board of
Directors; (3) shares of Common Stock issued pursuant to the exercise of
options, warrants or convertible securities outstanding as of the Original Issue
Date; (4) shares of Common Stock (and/or options, warrants, preferred stock or
other common stock issued pursuant to such options, warrants, preferred stock or
other rights) issued in connection with leasing arrangements not to exceed an
aggregate of 200,000 shares of Common Stock (and/or options, warrants or other
Common Stock purchase rights, and the Common Stock issued pursuant to such
options, warrants or other rights) as such number may be increased from time to
time by the Company's Board of Directors with the approval of at least four
members of the Company's Board of Directors; and (5) shares of Common Stock
issued as a function of antidilution or similar protective clauses. The
"Effective Price" of Additional Shares of Common Stock shall mean the quotient
determined by dividing the total number of Additional Shares of Common Stock
issued or sold, or deemed to have been issued or sold by the Company under this
Section 5(j), into the aggregate consideration received, or deemed to have been
received by the Company for such issue under this Section 5(j), for such
Additional Shares of Common Stock.
k. ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each
case of an adjustment or readjustment of the Conversion Price for the number of
shares of Common Stock or other securities issuable upon conversion of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
or Series E Preferred, if the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, or Series E Preferred is then convertible
pursuant to this Section 5, the Company, at its expense, shall compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
or Series E Preferred at the holder's address as shown in the Company's books.
The certificate shall set forth such adjustment or readjustment, showing in
detail the facts upon which such adjustment or readjustment is based, including
a statement of (i) the consideration received or deemed to be received by the
Company for any Additional Shares of Common Stock issued or sold or deemed to
have been issued or sold, (ii) the Conversion Price with respect to such series
of Preferred Stock at the time in effect, (iii) the number of Additional Shares
of Common Stock and (iv) the type and amount, if any, of other property which at
the time would be received upon conversion of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, or Series E Preferred.
12.
<PAGE> 13
l. AUTOMATIC CONVERSION.
(i) Each share of Preferred Stock shall
automatically be converted into shares of Common Stock, based on the
then-effective Conversion Price with respect to such share; at any time (1) more
than two-third of the shares of Preferred Stock authorized and issued and
outstanding have converted into Common Stock pursuant to this Section 5, or (2)
immediately upon the closing of a firmly underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Company in which the per share price is at least $13.13, appropriately adjusted
for any stock splits, stock combinations, stock dividends, recapitalizations and
the like, and the gross cash proceeds to the Company, less underwriting
discounts, commissions and fees, are at least $10,000,000.
(ii) Upon the occurrence of the event
specified in paragraph (i) above, the outstanding shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred shall be converted automatically without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Company or its transfer agent; provided, however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred are either delivered to the
Company or its transfer agent as provided below, or the holder notifies the
Company or its transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such certificates. Upon
the occurrence of such automatic conversion of the Preferred Stock, the holders
of Preferred Stock shall surrender the certificates representing such shares at
the office of the Company or any transfer agent for the Preferred Stock.
Thereupon, there shall be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Preferred Stock surrendered were convertible on the date on
which such automatic conversion occurred, and the Company shall promptly pay in
cash or, at the option of the Company, Common Stock (at the Common Stock's fair
market value determined by the Board as of the date of such conversion), or, at
the option of the Company, both, all declared and unpaid dividends on the shares
of Preferred Stock being converted, to and including the date of such
conversion.
m. FRACTIONAL SHARES. No fractional share shall be
issued upon conversion of any share or shares of Preferred Stock, and the
number of shares of Common Stock to be issued for each Preferred Stock
certificate shall be rounded down to the nearest whole share. The Corporation
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as determined in good faith by the Board of
Directors).
13.
<PAGE> 14
n. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
o. OTHER ADJUSTMENTS. No adjustment of the Conversion
Price for the Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred, or Series E Preferred shall be made in an amount less than one cent
per share, provided that any adjustments which are not required to be made by
reason of this sentence shall be carried forward and shall be either taken into
account in any subsequent adjustment made prior to 3 years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of 3 years from the date of the event giving rise to the adjustment
being carried forward. Except to the limited extent provided for in subsections
5(j)(iii), no adjustment of such Conversion Price pursuant to subsection 5(j)
shall have the effect of increasing the Conversion Price above the Conversion
Price in effect immediately prior to such adjustment.
p. NOTICES. Any notice required by the provisions of
this Section 5 to be given to the holders of shares of the Preferred Stock shall
be deemed given upon the earlier of actual receipt or seventy-two (72) hours
after the same has been deposited in the United States mail, by certified or
registered mail, return receipt requested, or first class mail postage prepaid,
and addressed to each holder of record at the address of such holder appearing
on the books of the Company.
q. PAYMENT OF TAXES. The Company will pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Preferred Stock, excluding any tax or other charge
imposed in connection with any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of
Preferred Stock so converted were registered.
r. NO DILUTION OR IMPAIRMENT. The Company shall not
amend its Articles of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or seeking
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good faith assist
in carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred Stock
against dilution or other impairment.
14.
<PAGE> 15
6. NOTICES OF RECORD.
a. Upon any taking by the Company of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, or upon
any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any transfer
of all or substantially all the assets of the Company to any other person, or
any voluntary or involuntary dissolution, liquidation or winding up of the
Company, or any shareholders' meeting to approve the terms thereof, the Company
shall mail to each holder of Preferred Stock at least twenty (20) days prior to
the record date specified therein a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend or distribution and
a description of such dividend or distribution, (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective, and the date of the
shareholders meeting to approve the terms thereof, if applicable, (iii) the
date, if any, that is to be fixed as to when the holders of record of Common
Stock (or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable upon
such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up, and (iv) the material terms thereof.
7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
or Series E Preferred acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued. The Articles of
Incorporation shall be appropriately amended to reflect the consequent valuation
in the Company's authorized capital stock.
V.
A. The following is applicable to the Common Stock:
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of
all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the Company
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of the Company, the assets of the Company shall be distributed as
provided in Section 3, Division C of Article III hereof.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock
shall have the right to one vote, and shall be entitled to notice of any
shareholders' meeting in
15.
<PAGE> 16
accordance with the Bylaws of the Company, and shall be entitled to vote upon
such matters and in such manner as may be provided by law.
VI.
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors. The number
of directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class III directors shall expire and
Class III directors shall be entered for a full-term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the
16.
<PAGE> 17
directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of voting stock of the Corporation entitled
to vote at an election of directors (the "Voting Stock"). The Board of Directors
shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws and following the closing of the Initial Public
Offering no action shall be taken by the stockholders by written consent.
4. Advance notice of stockholder nominations for the election
of directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
VII.
A. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VII shall be prospective
and shall not affect the rights under this Article VII in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
17.
<PAGE> 18
VIII.
A. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B of this
Article VIII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles VI, VII
and VIII.
**************
THREE: The foregoing amendment and restatement has been duly approved
by the Board of Directors of said corporation.
FOUR: The foregoing amendment and restatement of this Certificate of
Incorporation has been duly adopted in accordance with Sections 228, 242 and 245
of the General Corporation Law of Delaware by the Board of Directors and
stockholders of the Corporation. The total number of outstanding shares
entitled to vote or act by written consent was one hundred (100) shares of
Common Stock. A majority of the outstanding shares of Common Stock approved
this Amended and Restated Certificate of Incorporation by Written Consent in
accordance with Section 228 of the General Corporation Law of Delaware and
written notice of such was given by the Corporation in accordance with said
Section 228.
18.
<PAGE> 19
IN WITNESS WHEREOF, Cerus Delaware Corporation has caused this Amended
and Restated Certificate of Incorporation to be signed by the President and
Secretary in Concord, California, this ___ day of January, 1997.
___________________________________
Stephen T. Isaacs
President
___________________________________
Lori L. Roll
Secretary
The undersigned certify under penalty of perjury that they have read
the foregoing Amended and Restated Certificate of Incorporation and they know
the contents thereof, and that the statements therein are true. Executed at
Concord, California, on January ___, 1997.
___________________________________
Stephen T. Isaacs
President
___________________________________
Lori L. Roll
Secretary
<PAGE> 1
EXHIBIT 4.2
THIS CERTIFICATE IS
TRANSFERABLE IN THE
CITY OF NEW YORK OR
IN MINNEAPOLIS, MN
COMMON STOCK
NUMBER COMMON STOCK
CERS CERUS CORPORATION SHARES
INCORPORATED SEE REVERSE FOR
UNDER THE LAWS OF CERTAIN
THE STATE OF DEFINITIONS AND A
DELAWARE STATEMENT AS TO
THE POWERS, DESIGNATIONS,
PREFERENCES,
RESTRICTIONS AND RIGHTS OF
SHARES
CUSIP
THIS CERTIFIES THAT
is the record owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
$0.001 PAR VALUE, OF
CERUS CORPORATION
transferable on the books of the Corporation by the registered holder hereof in
person or by duly authorized attorney upon surrender of this certificate
properly endorsed. This certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.
In Witness Whereof the Corporation has caused this certificate to be signed in
facsimile by its authorized officers and its facsimile seal to be affixed.
Dated:
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
CERUS CORPORATION
The Corporation is authorized to issue Common Stock and Preferred
Stock. The Board of Directors of the Company has the authority to fix the
number of shares and the designations of Preferred Stock and to determine or
amend the preferences, privileges, and restrictions granted to or imposed upon
any unissued shares of Preferred Stock.
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights so far as the same shall have
been fixed, and of the authority of the Board of Directors to designate and fix
any preferences, rights and limitations of any wholly unissued series. Such
requests shall be made to the Corporation's Secretary at the principal office of
the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as Joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - _________Custodian____________________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act___________________________________________
(State)
UNIF TRF MIN ACT - _________Custodian (until age_________________)
(Cust)
________________________under Uniform Transfer
(Minor)
to Minors Act_________________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/ /
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
Shares of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated______________________
<PAGE> 3
X____________________________________
X____________________________________
NOTICE. THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE
CERTIFICATE IN EVERY
PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATSOEVER.
SIGNATURE GUARANTEED:
______________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR
DESTROYED, THE CORPORATION MAY REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE> 1
[COOLEY GODWARD LLP LETTERHEAD]
Exhibit 5.1
January 8, 1997
Cerus Corporation
2525 Stanwell Drive, Suite 300
Concord, CA 94520
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Cerus Corporation (the "Company") of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission"), covering an underwritten public
offering of up to 2,300,000 shares of Common Stock (the "Common Stock").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Amended and
Restated Certificate of Incorporation, as amended, and Bylaws, and the
originals or copies certified to our satisfaction of such records, documents,
certificates, memoranda and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below, (ii) assumed
that the Amended and Restated Certificate of Incorporation, as amended, as set
forth in Exhibit 3.2 to the Registration Statement, will have been duly
approved and filed with the office of the Delaware Secretary of State and (iii)
assumed that the shares of Common Stock will be sold by the Underwriters at a
price established by the Pricing Committee of the Board of Directors of the
Company.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be duly and validly issued, fully paid
and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ Howard G. Ervin
______________________________
Howard G. Ervin
<PAGE> 1
EXHIBIT 10.24
FIRST AMENDMENT TO COMMON STOCK PURCHASE AGREEMENT
This First Amendment to Common Stock Purchase Agreement ("Amendment")
is entered into as of the 9th day of December, 1996, by and between Cerus
Corporation (formerly known as Steritech, Inc.), a California corporation
("Cerus"), and Baxter Healthcare Corporation, a Delaware corporation
("Purchaser").
WHEREAS, Cerus and Purchaser are parties to a Common Stock Purchase
Agreement, dated as of September 3, 1996 (the "Original Agreement");
WHEREAS, the Registration Statement (as defined in the Original
Agreement) has not yet become effective and Baxter desires that its termination
rights be modified in light of this fact and in consideration of not exercising
its rights under Section 7.14 of the Original Agreement;
AND WHEREAS, Cerus and Purchaser wish to amend the Original Agreement
accordingly;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth Cerus and Purchaser agree that the
following amendment shall be made to the Original Agreement, effective as of
the date given above:
1. Section 7.14 of the Original Agreement is hereby deleted in its
entirety and replaced with the following:
7.14 TERMINATION. If the Registration Statement for the
IPO has not become effective before or on February 14, 1997,
Purchaser in its sole discretion may elect to terminate this
Agreement by providing written notice to the Company not later
than February 21, 1997. These rights of termination are in
addition to those rights provided Purchaser under Section 5 of
this Agreement. In no event will Purchaser be liable to the
Company for any expenses incurred in connection with the
Registration Statement or the IPO. If the Registration
Statement never becomes effective (either because the offering
is withdrawn or otherwise), however, and the Company files a
new registration statement for an initial public offering, the
rights provided Purchaser under Section 4.2(b) of the Baxter
Agreement shall be reinstated and shall apply to such offering
pursuant to Section 4.2(b) of the Baxter Agreement.
2. The phrase "this Agreement" as it appears in the Original
Agreement or this Amendment shall be deemed to refer to the Original Agreement,
as modified by this Amendment.
3. Except as modified by this Amendment, the terms of the Original
Agreement shall continue in full force and effect.
4. This Amendment shall be governed in all respects by the laws
of the State of California.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date set forth in the first paragraph hereof.
CERUS CORPORATION
2525 Stanwell Drive
Concord, California 94520
By: /s/ Stephen T. Isaacs
-----------------------
Stephen T. Isaacs
Title: President
--------------------
Date: December 9, 1996
--------------------
BAXTER HEALTHCARE CORPORATION
One Baxter Parkway
Deerfield, Illinois 60015
By: /s/ Timothy B. Anderson
-----------------------
Timothy B. Anderson
Title: Group Vice President
--------------------
Date: December 9, 1996
--------------------
<PAGE> 1
EXHIBIT 10.25
M E M O R A N D U M
TO: KIM BUSH
FROM: DAVID CLAYTON
DATE: JANUARY 3, 1997
CC: DAN BISCHOF, BRIAN SCHOEN, STEVE ISAACS
RE: 1997 PROJECT BUDGETS
During a series of meetings from September to December 1996 to discuss the 1997
project budgets for platelets, FFP and red cells, we identified the need to fund
the projects at levels higher than had been anticipated when Baxter Fenwal
submitted its budget for 1997, and we determined to proceed as described below:
1. The budgets for 1997 to be submitted to the project management
committees are approximately [*] for the platelet program, [*] for
the FFP program, and [*] for the red cell program - a total of
approximately [*]. These budget amounts are on a "net G&A" basis,
i.e., general and administrative expenses (G&A) will be charged
against each project budget only to the extent one party's G&A exceeds
the G&A of the other party.
2. The parties reaffirm that each party will fund 50% of the approved
project budgets. To the extent that actual expenditures are less than
the approved budget for 1997, the balance will carry over and be
expended by the parties in 1998 without reducing either party's
obligation with respect to the 1998 budget (with similar carryover to
future years, if applicable). The parties anticipate that R&D funding
beyond 1997 will continue at 50% per partner.
3. Baxter and Cerus intend that the three projects proceed on the
schedules underlying the budget amounts described above. Nothing in
this agreement shall be construed as approval of the budgets to be
presented to the management board. The budgets for each of the
platelet, FFP and red cell programs must be separately approved in
accordance with the provisions of the Development, Manufacturing and
Marketing Agreement dated December 10, 1993 and the Development,
Manufacturing and Marketing Agreement dated April 1, 1996.
4. Section 3.12 of the Development, Manufacturing and Marketing Agreement
dated December 10, 1993 is amended to provide that the reconciliation
of expenditures and balancing payment provided for in that section will
take place at the end of each calendar year, in addition to the
reconciliation provided for upon Regulatory Approval in the United
States. The first such reconciliation and balancing payment will be
made in 1998 for expenditures through the end of 1997.
[*] Confidential Treatment Requested
1.
<PAGE> 2
5. Section 3.11 of the Development, Manufacturing and Marketing Agreement
dated December 10, 1993 is amended to delete the last three sentences.
Section 3.11 shall hereafter read as follows:
BUDGET CONTINGENCIES. If a Benchmark is not completed within
the budget for such Benchmark, upon the recommendation of the
Project Committee, and subject to the approval of the
Management Board, the Management Board shall set a new budget
for completion of such Benchmark. Unless the Management
Committee shall determine otherwise, Steritech and Baxter will
each fund one-half of the amount needed to complete such
Benchmark.
6. The mutual changes as set forth above are conditioned on the closing of
Cerus' initial public offering in the first quarter of 1997. If Cerus
does not complete the initial public offering by the end of the first
quarter of 1997, this agreement will have no effect and the
Development, Manufacturing and Marketing Agreement dated December 10,
1993 will remain in effect unaltered by this supplemental agreement.
Please indicate your concurrence that this memorandum accurately summarizes our
agreement by signing and returning a copy to me.
/s/ David S. Clayton /s/ Kim Bush
________________________ ____________________________________
David S. Clayton, CFO Kim Bush, President, Fenwal Division
Cerus Corporation Baxter Healthcare Corporation
2.
<PAGE> 1
EXHIBIT 10.26
MEMORANDUM OF AGREEMENT
At our meeting on December 10, 1996 Cerus agreed to buy and Baxter
agreed to sell a 2.2% share in "Revenue Sharing Participation" of the platelet
program. The points of agreement are set forth below for your review and
concurrence, as an Amendment to the Development, Manufacturing and Marketing
Agreement dated December 10, 1993.
1. In consideration for Cerus' increase of 2.2% in "Revenue Sharing
Participation," as described in paragraph 2 below, Cerus will pay to Baxter $5.5
million. The $5.5 million will be due and payable in quarterly installments with
the first installment due within 15 days of Cerus' receipt of the proceeds from
the initial public offering and the remaining installments due April 1st (or at
the time of payment the first installment, if later), July 1st and October 1st
of 1997. This agreement does not change the other aspects of the December 10,
1993 Agreement and the parties reaffirm their intention of each firm to continue
funding 50% of the R&D expense.
2. Under this agreement, Section 7.1 of the December 10, 1993 Agreement
regarding the "Revenue Sharing Payments" is amended to provide that the
quarterly payments by Baxter to Cerus will be 28.2% of the Premium during the
relevant calendar quarter, rather than 26% of the Premium.
Section 7.2 of the December 10, 1993 Agreement regarding "Exception to
Revenue Sharing Payments of 7.1" is amended to provide that Cerus will receive
additional Revenue Sharing Payments beyond those set forth in Section 7.2 equal
to 2.2% of the Premium.
3. Nothing in this agreement shall be construed as approval of the
budgets to be presented to the management board. The budgets for each of the
platelet, FFP and red cell programs must be separately approved in accordance
with the provisions of the Development, Manufacturing and Marketing Agreement
dated December 10, 1993 and the Development, Manufacturing and Marketing
Agreement dated April 1, 1996.
4. The mutual changes as set forth above are conditioned on the closing
of Cerus' initial public offering in the first quarter of 1997. If Cerus does
not complete the initial public offering by the end of the first quarter of
1997, this agreement will have no effect and the Development, Manufacturing and
Marketing Agreement dated December 10, 1993 will remain in effect unaltered by
this supplemental agreement.
Please indicate your concurrence that this memorandum accurately
summarizes our agreement by signing and returning a copy to me. This agreement
will be effective January 3, 1997.
/s/ David S. Clayton /s/ Kim Bush
- ----------------------------- ------------------------------------
David S. Clayton, CFO Kim Bush, President, Fenwal Division
Cerus Corporation Baxter Healthcare Corporation
<PAGE> 1
EXHIBIT 10.27
RESEARCH, DEVELOPMENT, REDUCTION TO PRACTICE
AND MANUFACTURING CONTRACT
THIS CONTRACT is made and entered as of the 1st day of October, 1996, (the
"Effective Date") by and between Cerus Corporation, having a place of business
at 2525 Stanwell Drive, Suite 300, Concord, California 94520 (hereinafter
"CLIENT"), and [*] having a place of business at [*], (hereinafter "[*]").
WHEREAS, CLIENT is engaged in the discovery and development of pharmaceutical
products; and
WHEREAS, [*] is engaged in chemical research, synthesis, scale-up and bulk
manufacturing for the pharmaceutical industry in accordance with FDA standards;
and
WHEREAS, CLIENT proposes to retain [*] to analyze, assess and develop the
process to manufacture Steritech Compound S-303 described in the process
description attached hereto as Exhibit A (the "Process") and to manufacture such
compound for CLIENT pursuant to such process.
NOW, THEREFORE, IT IS AGREED THAT THE FOLLOWING SHALL BE THE TERMS AND
CONDITIONS APPLICABLE TO THE SERVICES AND THE MATERIALS SUPPLIED BY [*]:
1. Services
The services to be performed hereunder ("Project"), as well as the
applicable rates for research and prices for manufactured material, plus
estimated budgets therefor, are described in attachments to this Contract,
signed by duly authorized officers of each party, numbered sequentially and
amendable only by a document similarly executed ("Project Description"). Each
Project shall be subject to and deemed a part of this Contract. Promptly upon
joint execution of this Contract and a Project Description, and receipt of the
agreed deposit, [*] shall proceed with the work specified in the Project
Description, and, if agreed, meet any product specifications contained therein.
2. Specific Duties of [*] for each Project
A. To the extent relevant to a particular Project, unless otherwise
specified in the Project Description, [*] will:
1) Perform its services in accordance with applicable FDA and other
governmental regulations;
2) Develop a scalable process for synthesis of the compound(s) specified
in the Exhibit;
3) Develop an analytical method to measure the purity of such
compound(s);
[*] Confidential Treatment Requested
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4) Provide a certificate of analysis with respect to such compound(s)
when produced;
5) Provide a report to CLIENT describing research procedures used and
results obtained;
6) Respond to all reasonable requests of CLIENT for information
pursuant to this Agreement; and
7) Retain experimental records and laboratory notebooks relating to the
Project for a period of ten (10) years or such longer period as may be
agreed upon; and
8) Make applicable [*] facilities, equipment, contracts and
documentation available for inspection by CLIENT or its designated auditor,
subject to its execution of an appropriate confidentiality agreement, with
respect to a specific Project, at dates and times that are mutually agreed
upon.
3. Specific Duties of CLIENT for the Project
A. Unless otherwise specified in the Project Description, CLIENT will:
1) Provide to [*] all reasonably appropriate and readily
available information available to CLIENT with respect to the preparation
and analysis of compound(s) specified in the Project Descriptions;
2) Provide intermediates to [*] when appropriate for chemical
process development studies;
3) Respond to all reasonable requests of [*] for information in
the possession of CLIENT that is required by [*] for the performance
of [*] duties under this Contract; and
4) Make payments as herein required.
4. Compensation
A. Deposit. Promptly upon execution of a particular Project Description
CLIENT shall pay [*] the Deposit for the Project, which will be
twenty-five percent (25%) of the estimated direct labor budget or of the total
purchase price, in the case of manufacturing Projects, unless otherwise agreed.
The Deposit shall be credited proportionately against each invoice payable
hereunder in accordance with the percentage of the Project then completed.
B. Advance Payment for Materials. Materials for the Project will be
purchased on consignment for CLIENT'S account and payment therefor must be
received by [*] before it will order such materials. Such payment shall
include a handling charge of 8% of
[*] Confidential Treatment Requested
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<PAGE> 3
material to be purchased;
C. Invoices. Unless otherwise agreed, CLIENT shall pay[*], not later
than thirty days from the issuance thereof, invoices rendered to CLIENT by [*]
for the following items. In the event any payment is not made on time, [*] shall
be entitled, among its other rights, to cease work upon ten (10) days written
notice to CLIENT and stop deliveries until such payment is made.
1) Manufacturing Charges. Charges at agreed purchase prices for
manufactured material/products as shipped;
2) Research Charges. Work performed on the Project by [*] (i) for
the execution of work under this Contract and (ii) for any
work requested by the FDA or other governmental authority or
investigator on its behalf pertaining to a Project shall be
charged at the rate specified in the Project Description.
3) Waste. Waste disposal charges allocable to the Project at cost
plus 8% handling;
4) Travel. Expenses for travel incurred by [*] personnel in
connection with the Project. Travel over $1000 will require
CLIENT approval.
5) Expendables and supplies directly related or used in this Project.
Expenditures over $1000 will require CLIENT approval.
6) Special equipment and glassware. Expenditures over $1000 will
require CLIENT approval.
7) Extraordinary expenses (e.g., additional manpower allocation) if
(i) authorized by CLIENT or (ii) required by a regulating agency
or pursuant to a court order.
8) Expenses for personnel time, travel, legal fees and other expenses
incurred at the request of CLIENT in patent matters, litigation
and regulatory matters.
9) Costs incurred by [*] for outside consultants or other third
parties approved by CLIENT.
10) Other costs for services related to this Contract, including but
not limited to costs incurred by [*] for freight and outside
chemical and analytical services shall be reimbursed by CLIENT as
incurred. Expenditures over $1000 will require CLIENT approval.
D. Audit. CLIENT's auditors, subject to normal obligations of
confidentiality, may audit the books and records of [*] to the extent
necessary to verify charges hereunder
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<PAGE> 4
during normal business hours on the premises of [*] at CLIENT's expense.
Such audit may be performed as frequently as once per year during the term of
this Contract.
E. Late Payments. In addition to its other rights, [*] shall
be entitled to interest at the rate of one and one-half percent (1.5%) per
month on any payment which is not made when due.
5. Manufacturing Warranty.
[*] WARRANTS THAT ALL MATERIALS MANUFACTURED BY IT COMPLY WITH AGREED
SPECIFICATIONS BUT MAKES NO OTHER WARRANTY OR REPRESENTATION OF ANY KIND, EITHER
EXPRESS OR IMPLIED, AS TO MATERIALS OF ANY KIND SUPPLIED TO CLIENT HEREUNDER,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE AND [*] WILL NOT BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, OR
OTHER DAMAGES EXCEPT THAT [*] SHALL, AT ITS OPTION, REPLACE OR REFUND THE PRICE
PAID FOR ANY PRODUCTS OR MATERIALS DETERMINED NOT TO MEET AGREED SPECIFICATIONS.
6. Indemnity.
A. Client's Responsibility. As to materials of any kind
manufactured by [*] or otherwise supplied to CLIENT hereunder, it is
understood and agreed that (1) the specifications for such materials are the
responsibility of CLIENT; (2) [*] has no responsibility for establishing
the safety or efficacy of any such material for any particular use; and (3)
CLIENT shall be solely responsible for compliance of such products and materials
with all legal requirements, including but not limited to applicable
requirements as to safety and efficacy. CLIENT shall indemnify, hold harmless
and make whole [*], its directors, officers and employees, and any legal
entity controlling, controlled by or under common control with [*], from
and against any and all damages, costs, expenses, claims, demands or causes of
action of every kind and character arising out of claims by any third party
(including, without limitation, employees, affiliates or agents of CLIENT) with
respect to services or materials supplied to CLIENT by [*] pursuant to
this Agreement, to the extent such damages, costs, expenses, claims, demands or
causes of action arise solely from CLIENT's negligence.
B. [*] Responsibility. [*] shall indemnify, hold harmless and make
whole CLIENT, its directors, officers and employees, and any legal entity
controlling, controlled or under common control with CLIENT, from and against
any and all damages, costs, expenses, claims, demands or causes of action of
every kind and character arising out of claims by any third party (including,
without limitation, employees, affiliates or agents of CLIENT pursuant to this
Agreement, to the extent such damages, costs, expenses, claims, demands or
causes of action arise solely from [*] negligence.
C. Insurance. Each party shall maintain adequate product liability
insurance to
[*] Confidential Treatment Requested
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<PAGE> 5
support its indemnity hereunder.
7. Confidentiality.
Except as otherwise provided herein, each party may provide to the
other certain Confidential Information (as hereinafter defined) belonging to
it, without conveying any interest or right therein to the recipient, and
without making any Confidential Information public or common knowledge;
A. Confidential Information. For purposes of this Contract, the
term "Confidential Information" shall mean any of the following:
1) Any information, including, but not limited to,
chemical material, biological material, know-how, data, processes,
techniques, algorithms, programs, designs, drawings, formulas or test
data relating to any research project, work-in process, future
development, engineering, manufacturing, marketing, business plan,
servicing, financial or personnel matter, present or future
consultants, investors or business, whether in oral, written, graphic,
electronic or physical form (hereinafter called "Information"); and
2) Any Information disclosed to a party by any third party
which the recipient is obligated to treat as confidential or
proprietary; and
3) Any Information based upon or derived directly or
indirectly, in whole or in part, from Information disclosed by either
party, including but not limited to, any observation concerning any
aspect of such Information, but only to the extent that the derived
Information inherently embodies or discloses the disclosed Information.
B. Nondisclosure of Confidential Information. The recipient of
Confidential Information agrees that during a period of five (5) years from the
date of such receipt, it will not at any time disclose to any person or use for
its own benefit or the benefit of anyone other than the other party any such
Confidential Information without the prior express written consent of the party
from whom it was obtained; provided, however, that the foregoing obligation
shall not apply to any such Confidential Information which:
1) is now, or which hereafter, through no act or failure
to act on the part of the recipient, becomes generally known or
available;
2) is known by the recipient at the time of receiving such
Confidential Information;
3) is hereafter legitimately furnished to the recipient by
a third party; or
4) the recipient can prove was independently developed by
it or its parent, affiliate or subsidiary companies, without use or
knowledge of such Confidential
-5-
<PAGE> 6
Information.
C. Disclosure of Confidential Information to Employees and Agents.
Each party shall be entitled to consult its employees and agents for the
purpose of evaluating the Confidential Information received under this
Agreement, so long as such employees and agents are enforceably obligated to
comply with such party's obligations under this Agreement.
D. Return of Documents and Property. Upon termination of this
Contract, each party shall promptly deliver to the other all Confidential
Information and other property belonging to the other party which such party
shall have in its possession or under its control, except as the other party
shall, by prior express written permission, allow such party to retain.
However, this paragraph shall not apply to production records and laboratory
notebooks kept in the ordinary course of business.
8. Ownership of Inventions
Unless otherwise agreed, any invention or trade secret and any
materials, documents, programs or synthesis information belonging to CLIENT and
supplied to [*] by CLIENT pursuant to this Contract shall remain the
property of CLIENT.
[*] hereby assigns to CLIENT all right, title and interest in and
to all inventions it makes with respect to the process to manufacture S-303 as
described in the Process (and all proprietary rights with respect thereto)
including, but not limited to, methods of compound synthesis, scale-up and
purification and recognizes that all information arising from its work on the
process to manufacture S-303 as described in the Process, shall be made
available to CLIENT.
9. Miscellaneous
A. This Contract represents the entire agreement of the parties
with respect to the subject matter hereof. No modification of the provisions of
this Contract shall be effective unless in writing and signed by a duly
authorized officer of [*] and CLIENT. Any purchase orders issued by CLIENT
shall be subject to this provision.
B. Neither party shall have the right to assign this Contract or
any of the rights or obligations hereunder without the prior written consent of
the other party, except that each party may assign all of its rights and
obligations hereunder to a third party of at least equal financial
responsibility as part of an acquisition of all the business of such assigning
party by such third party.
C. If any provision hereof shall be determined to be invalid or
unenforceable, such determination shall not affect the validity of the other
provisions of the Contract.
D. This Contract shall be governed in accordance with the laws of
the State of California without regard to any principle of law referring to
the laws of other jurisdictions.
[*] Confidential Treatment Requested
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<PAGE> 7
E. The waiver by either party or the failure by either party to
claim a breach of any provision of this Contract shall not be deemed to
constitute a waiver or estoppel with respect to any subsequent breach of any
provision hereof.
F. Any dispute between the parties arising out of or concerning
this Contract will be submitted to binding arbitration in Chicago, Illinois, in
accordance with the commercial arbitration rules of the American Arbitration
Association, with costs borne equally by both parties.
IN WITNESS WHEREOF the parties hereto have executed this contract as of
the date first above written.
CERUS CORPORATION [*]
By: /s/ Steve Isaacs By: /s/ [*]
----------------------------- ------------------------
Title: Steve Isaacs, President & CEO Title: [*] , President
----------------------------- ------------------------
Date: 10/1/96 Date: Sept. 25, 1996
----------------------------- ------------------------
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<PAGE> 8
EXHIBIT A
Cerus Corporation Compound S-303 (and salts thereof)
[*]
[*] Confidential Treatment Requested
<PAGE> 9
PROJECT DESCRIPTION ONE
Reduction to Practice and Preparation of non-GMP S-303-HC1 from S-301-HC1
(Provided by Cerus) for Range Finding Toxicology Studies
Overall, [*] will attempt to do the following tasks using a synthetic
scheme provided by Cerus.
Scope of Tasks
1. Transfer pertinent analytical methods and initiate at [*].
2. Do one run following a synthetic scheme provided by Cerus (initial
reduction to practice) noting and recording significant observations.
3. Do one or two runs at an approximate [*] to [*] scale (working scale-up)
to study and show feasibility at a larger scale. Some process improvement
will be attempted, by mutual agreement, at this scale and may include:
increased loading. Reference standards will be taken.
4. Do one or two runs at a development scale designed to produce agreed upon
quantities (non-GMP) of the designated compound.
5. Develop and deliver progress reports every two weeks.
6. Do agreed quality control analysis on material and generate a certificate
of analysis.
7. Ship material to Cerus or designate as directed.
8. Provide process and analytical data for material supplied to Cerus or
designate.
9. Ship to Cerus all significant quantities of S-303 prepared that are not
required by [*].
General Analytical Methods (subject to change)
- ------------------------------------------------------------------------------
Compound or Intermediate Methods (parentheses indicate data taken for
information only)
- ------------------------------------------------------------------------------
S-301 HPLC, IR, (NMR)
- ------------------------------------------------------------------------------
S-302 HPLC, IR, (NMR)
- ------------------------------------------------------------------------------
HPLC, NMR, IR, (Elemental: C,H,N,Cl;
S-303 Solvents by GC)
- ------------------------------------------------------------------------------
Additional Process Improvements to be Attempted (as appropriate and agreed)
- - Reduce recrystallization solvent volume where possible (increase loading)
- - Reduce [*] volume if possible.
- - Improve recrystallization procedure for S-302.
[*] Confidential Treatment Requested
<PAGE> 10
Cerus Will Provide [*] With:
* Samples of compounds and intermediates (S-301, S-302, S-303)
* Known degradants and impurities as they are identified and isolated. Such
compounds may include: [*], [*] and a [*] of S-301
* HPLC analytical method
* UV spectra of selected compounds
* A starting synthetic scheme for S-303
* Updated synthetic and analytical information as it becomes available
* Sufficient supply of S-301 HCL to meet the needs of [*] to complete the
scope of tasks
Communications:
* Cerus and [*] will have a set-up meeting at a site mutually agreed
upon to initiate the project
* Principal contacts for technical and business matters will be [*] and [*]
respectively
* [*] shall be the principal contact for technical and business matters at
Cerus Corporation.
* [*] personnel will be available during normal business hours by
telephone and fax to support this project. Conference calls may be
conducted as agreed upon.
* Cerus may request process summaries and analytical data be provided
on an as needed basis.
Budget Management
[*] will monitor and report to Cerus project progress regarding effort and
budget spent to date. Agreed upon budget will not be exceeded unless previously
approved by Cerus.
Estimated cost and Timeline for Project Description One
[*] estimates the budget approval necessary (excluding material and waste
disposal costs) to do the work in Project Description One at approximately [*] @
[*] plus materials (material and waste disposal costs carry an 8% handling fee).
Estimated time to completion is approximately [*] to [*] calendar [*] form
starting.
By: /s/ [*] By: /s/ Stephen T. Isaacs
--------------------------- -------------------------
Title: President Title: President & CEO
------------------------ ----------------------
Date: Sept. 26, 1996 Date: 10/1/96
------------------------ -----------------------
[*] Confidential Treatment Requested
<PAGE> 1
EXHIBIT 11.1
CERUS CORPORATION
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss........................ $(3,515,466) $(1,800,089) $(2,360,321) $(3,591,876) $(7,117,293)
=========== =========== =========== =========== ===========
Shares used in net loss per
share computation:
Weighted average shares of
common stock outstanding... 1,490,580 1,443,942 1,416,355 1,415,841 1,418,712
Shares related to Staff
Accounting Bulletin Topic
4D:
Common stock(1)............ 485,247 485,247 485,247 485,247 485,247
Common stock options(2).... 265,426 265,426 265,426 265,426 265,426
Preferred stock(3)......... 560,001 560,001 560,001 560,001 560,001
----------- ----------- ----------- ----------- -----------
1,310,674 1,310,674 1,310,674 1,310,674 1,310,674
----------- ----------- ----------- ----------- -----------
Shares used in net loss per
share computation............. 2,801,254 2,754,616 2,727,029 2,726,515 2,729,386
=========== =========== =========== =========== ===========
Net loss per share.............. $ (1.25) $ (0.65) $ (0.87) $ (1.32) $ (2.61)
=========== =========== =========== =========== ===========
Calculation of shares
outstanding for computing pro
forma net loss per share:
Shares used in computing
historical net loss per
share (from above):........ 2,727,029 2,729,386
Adjustment to reflect the
effect of the assumed
conversion of convertible
preferred stock from the
date of issuance(4):....... 3,506,213 3,852,242
----------- -----------
Shares used in computing pro
forma net loss per share...... 6,233,242 6,581,628
=========== ===========
Pro forma net loss per share.... $ (0.38) $ (1.08)
=========== ===========
</TABLE>
- -------------
(1) Net additional outstanding shares assuming common shares issued after
July 31, 1995 were issued and outstanding in all prior periods and the
proceeds were applied to repurchase shares at the estimated initial public
offering price per share.
(2) Net additional outstanding shares from stock options granted after July 31,
1995 assuming exercise of options and repurchase of shares at the estimated
initial public offering price per share.
(3) Series E preferred stock issued in April 1996 and July 1996 (convertible
into common stock) and assumes shares are outstanding in all prior periods.
(4) Preferred stock issued before July 31, 1995 (convertible into common
stock).
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated April 3, 1996
(except Note 7, as to which the date is January , 1997), in Amendment No. 2 to
the Registration Statement (Form S-1 No. 333-11341) and related Prospectus of
Cerus Corporation for the registration of 2,300,000 shares of its common stock.
Ernst & Young, LLP
Walnut Creek, California
The foregoing consent is in the form that will be signed upon the
completion of the stock split as described in Note 7 to the financial
statements.
/s/ ERNST & YOUNG, LLP
Walnut Creek, California
January 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1993 DEC-31-1994 DEC-31-1995 DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1993 JAN-01-1994 JAN-01-1995 JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1993 DEC-31-1994 DEC-31-1995 SEP-30-1995 SEP-30-1996
<EXCHANGE-RATE> 1 1 1 1 1
<CASH> 0 7,802,275 9,659,017 0 9,476,492
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 0 0 0 0
<ALLOWANCES> 0 0 0 0 0
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 0 313,603 258,583 0 289,167
<PP&E> 0 1,745,264 1,949,247 0 2,310,338
<DEPRECIATION> 0 (356,720) (686,427) 0 (1,035,374)
<TOTAL-ASSETS> 0 9,684,295 11,348,849 0 11,769,460
<CURRENT-LIABILITIES> 0 2,250,782 2,654,203 0 3,801,893
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 2,092 2,621 0 3,002
<COMMON> 0 1,413 1,418 0 1,907
<OTHER-SE> 0 5,435,693 8,658,600 0 7,855,629
<TOTAL-LIABILITY-AND-EQUITY> 0 9,684,295 11,348,849 0 11,769,460
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 230,000 4,796,348 6,798,935 3,663,429 3,066,850
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 0 0 0 0 0
<OTHER-EXPENSES> 3,695,351 6,874,101 9,642,463 7,598,721 10,539,941
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 76,001 43,017 16,821 12,644 13,131
<INCOME-PRETAX> (3,515,466) (1,800,089) (2,360,321) (3,591,876) (7,117,293)
<INCOME-TAX> 0 0 0 0 0
<INCOME-CONTINUING> 0 0 0 0 0
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> (3,515,466) (1,800,089) (2,360,321) (3,591,876) (7,117,293)
<EPS-PRIMARY> 0 0 (0.38) 0 (1.08)
<EPS-DILUTED> 0 0 0 0 0
</TABLE>
